ANTIQUES SHOPS

HONG KONG (Standard & Poor's) June 15, 2012-- China's recent cut in interest rates and the relaxation of lending and deposit rate controls are likely to trigger financial sector reforms.

Standard & Poor's Ratings Services believes that the long-term benefits of a more efficient system of allocating credit and a more diversified loan portfolio could outweigh the short-term strain on Chinese banks' profitability.

That's according to a report titled, "China's Small Step To Relax Its Bank Deposit Rate Ceiling Is A Giant Leap For Financial Sector Reforms," that the rating agency published today. "We estimate that the interest rate cut and the liberalization of interest rates could hit the banking sector's return on average assets by 10 basis points in 2012 and by 20-25 basis points in 2013," said Standard & Poor's credit analyst Ryan Tsang.

The short-term impact of the Chinese central bank's moves could vary for large and small financial institutions, the report noted.

"We expect interest incomes of large banks to weaken in the short term due to the relaxation of the lending rate floor. That's because large state-owned enterprises, which form a high portion of the lending books of these banks, have strong bargaining power," said Mr. Tsang.

"Smaller banks have a better bargaining position while negotiating loan terms with smaller companies." Nevertheless, the strain on small banks' businesses is likely to increase within two to three years, when large banks raise exposure to small companies.

"In our opinion, large state-owned commercial banks are likely to be the price-setters in this new environment. We expect smaller institutions to follow suit to attract their share of deposits," said Mr. Tsang.

Standard & Poor's expects the pace of China's interest rate liberalization to be gradual. That's because China's banks have accumulated high credit risks to segments such as local government financing platforms, property developers, and certain industries that face an overcapacity, such as steel.

The Chinese central bank's move could also expedite the shift in the banking sector's loan mix away from large companies, the report noted. As interest rates are liberalized, the spread on loans to large companies could narrow quickly. This will encourage banks to provide more loans to small and midsize enterprises and individuals.

* Woods trails by three after first round at Olympic

* Masters champion Watson battles to a 78 (Adds quotes, detail)

By Mark Lamport-Stokes

SAN FRANCISCO, June 14 (Reuters) - Tiger Woods moved ominously into his favourite territory on Thursday, clawing his way into contention with a one-under-par 69 in tough scoring conditions to lie three shots off the early U.S. Open lead.

As the year's second major lived up to its reputation as the toughest championship of all, the former world number one mixed three birdies with two bogeys to finish the opening round three behind fellow American Michael Thompson at the Olympic Club.

"I played well today," three-times champion Woods told reporters after breaking 70 in the opening round of a U.S. Open for the first time since 2002.

"I felt like I had control of my game all day. I'm really excited how I was able to execute my game plan all day today. The golf course was really quick.

"We knew the greens were going to be a little quicker, but I didn't think they would be this firm this early in the week. So we had to make a couple of adjustments with that."

The little known Thompson, who tied for 29th in his only previous U.S. Open appearance in 2008, upstaged the game's biggest names by carding a seven-birdie 66 on the challenging, hilly Lake Course.

Though Thompson bogeyed three of the first six holes - a stretch widely regarded as the most difficult start in the majors - he then surged up the leaderboard with six birdies in bright sunshine to take control of the tournament.

"This is one of my favourite golf courses, so I've got good feelings coming in here," said the 27-year-old Thompson, who booked his place in this week's field via sectional qualifying.

"I just got the putter hot today. I got kind of a wake-up call on the first hole, I missed my par putt because I didn't realise the greens were that fast.

"From then on I was just trying to flow," added Thompson, who was beaten by compatriot Colt Knost in the final of the 2007 U.S. amateur championship held at Olympic.

Woods was tied for second with 2001 PGA Championship winner David Toms, a stroke better than compatriots Jason Bohn and amateur Beau Hossler, South Korea's Park Jae-bum and Swede Robert Karlsson who opened with 70s.

Defending champion Rory McIlroy of Northern Ireland, British world number one Luke Donald and third-ranked Lee Westwood were among the late starters.

QUICK GREENS

Most of the early starters struggled on the tight fairways and surprisingly quick greens, four-times major winner Phil Mickelson carding a 76 and Masters champion Bubba Watson battling to a 78.

"I didn't play very well," Mickelson said after a round including seven bogeys and just one birdie. "I fought hard there for a while trying to keep it at a few over (par). It was a tough day when you play it the way I did."

Fellow left-hander Watson never recovered from four bogeys in his first eight holes.

"I just couldn't get anything going," the long-hitting American said. "Never got any rhythm, everything was just a little off."

Watson was hugely impressed by Woods' play.

"That was the old Tiger," he gushed. "That was beautiful to watch. That's what we all want to watch and that was awesome to see him strike the ball look. He made a couple (of) bogeys but under par on this golf course is pretty good."

Woods, who won the most recent of his 14 major titles at the 2008 U.S. Open, oozed confidence throughout his round as he outshone his playing partners Mickelson and Watson in front of huge galleries.

He was rock solid as he parred his first five holes after teeing off at the ninth, but bogeyed the 14th after his tee shot ended up in thick rough.

However Woods recovered with a two-putt birdie at the par-five 17th and then knocked in birdie putts from 10 and 30 feet at the fifth and sixth to move within a stroke of the lead.

Though he bogeyed the par-four sixth after finding a bunker with his approach, he parred the last two holes to remain in touch with Thompson.

"This golf course, it's so demanding and if you're off your game just a little bit, you're going to pay the price," Woods said. "I felt very pleased with every facet of my game today and and I stayed very patient out there."

Chinese teenager Andy Zhang, at 14 the youngest competitor at a U.S. Open since 1945 and possibly of all time, opened with a 79 while American Steve Marino languished at the bottom of the leaderboard after battling to an 84. (Reporting by Mark Lamport-Stokes in San Francisco; Editing by Frank Pingue)

In a second profit warning in nine weeks, Nokia said on Thursday that its phone business would post a deeper-than-expected loss in the second quarter due to tougher competition, which it expected to continue.

Once the world's dominant mobile phone provider, Nokia was wrongfooted by the rise of smartphones and is struggling to keep up with Apple, Samsung and Google. It is also losing market share in cheaper, more basic phones.

Chief Executive Stephen Elop is placing hopes of a turnaround on a new range of smartphones called Lumia, which use largely untried Microsoft Corp software. But Lumia sales have so far been slow, exasperating investors who have seen its stock crash more than 70 percent since it announced the software switch in February 2011.

"The job cuts and profit warning underline the seriousness of the challenges Nokia is facing, particularly in light of the eye-watering competition from Apple and Samsung," said Ben Wood, head of research at CCS Insight.

Nokia, whose cash position is increasingly scrutinized by investors, also said restructuring-related cash outflows would be around 650 million euros in the remaining three quarters of 2012 and around 600 million in 2013.

With the cost of Nokia's debt rising, the most bearish of analysts in a Reuters poll last month said the company could even be at risk of default if it fails to slow its cash burn.

Over the past five quarters, the onetime darling of mobile telcoms has eroded its cash pile by 2.1 billion euros - a rate that would wipe out its entire 4.9 billion reserves in a couple of years.

Analysts at JP Morgan said on Thursday they expect operating losses, combined with restructuring outflows, to leave Nokia with 1.63 billion euros cash at the end of next year.

"This is not a comfort zone for a company as large as Nokia," the analysts said.

Nokia's five-year credit default swaps (CDS) were at a new all-time high of 933 basis points on Thursday according to Markit. This means it costs $933,000 annually to buy $10 million of protection against a Nokia default using a five-year CDS contract and implies a default probability of 55 percent.

Bernstein analyst Pierre Ferragu said he expects the company to have minimal net cash position at the end of its restructuring.

"We therefore see continued potential downside to the recent stock price and maintain our underperform rating," Ferragu said.

Shares in Nokia were down 16 percent to 1.87 euros, below the psychologically important 2 euros mark, not seen since 1996.

Analysts have said that even with the dramatic fall in the share price, the worsening outlook made it hard to judge how much lower the shares could go.

"I won't comment on the stock price anymore, since it's been seen over and over, that there is no definitive bottom," said Evli analyst Mikko Ervasti.

"People are worried over Lumia sales. I think expectations for the third quarter will be cut," said Nordea analyst Sami Sarkamies.

The 10,000 job cuts, which include the closure of Nokia's only plant in its homeland Finland, bring total planned cuts at the group since Elop took over as chief executive in 2010 to more than 40,000 staff, or every third worker.

Of the latest job cuts, 3,700 will take place in Finland, where the firm will also close its plant in Salo - the last major cellphone manufacturing site in western Europe, the cradle of the global industry.

"This is a major blow. This is due to the operational mistakes made already during the previous CEOs. Maybe the signs of success are running low for Elop too," said Antti Rinne, chairman of labor union Pro.

Nokia said it expects its operating margin in the second quarter to be below the negative 3 percent level reported in the first quarter due to pressure on its smartphone business. It previously forecast it would be similar to or below that level.

On average analysts forecast the second-quarter phone unit margin to be at -4.6 percent, narrowing to -2.2 percent in the third quarter.

Nokia also said it would sell luxury phone business Vertu to venture firm EQT and revamp its management team. ($1 = 0.7953 euros)

(Additional reporting by Eero Vassinen and Terhi Kinnunen in Helsinki; Editing by Erica Billingham)