TOKYO (Reuters) – Three former executives of disgraced medical equipment and camera maker Olympus Corp were arrested on Thursday over their role in a $1.7 billion accounting fraud, one of Japan's biggest corporate scandals.

The three had been identified by an investigative panel, commissioned by the company, as the main culprits in the fraud, seeking to delay the reckoning from risky investments that Olympus, like many Japanese companies, made in the late-1980's bubble economy.

Tokyo prosecutors arrested ex-President Tsuyoshi Kikukawa, former Executive Vice President Hisashi Mori and former auditor Hideo Yamada on suspicion of violating the Financial Instruments and Exchange Law, officials said in a statement.

Also arrested were four others, including former bankers Akio Nakagawa and Nobumasa Yokoo, suspected of helping the executives hide huge investment losses through complex M&A deals.

The arrests come as investors focus on who will run the once-proud company when its management steps down at an April 20 shareholders meeting, and whether Olympus will seek a capital tie-up to fix its balance sheet.

Olympus is banking on that April meeting marking a turning point in the scandal, with at least six of its 11-member board, including President Shuichi Takayama, set to resign.

His successor is likely to be one of three board members the panel said were not responsible for the cover-up – Masataka Suzuki, Kazuhiro Watanabe and Shinichi Nishigaki – said a source familiar with the matter, who did not want to be identified due to the sensitivity of the issue.

"The arrests of former executives won't impact possible tie-ups with Terumo, Sony, Fujifilm and others," said a sell-side equity manager at a Japanese firm, who did not want to be named as he is not authorized to talk to the media.

"Olympus continues to be very attractive to other companies because of its endoscope business."

Last year, the investigative panel found Kikukawa, Mori and Yamada had played leading roles in a 13-year scheme to hide the losses, and they are among 19 executives Olympus is suing over the scandal.

The panel said it found no evidence of involvement by organized crime, despite speculation that "yakuza" gangsters were somehow involved in the cover-up scheme.

An Olympus spokesman said the company would cooperate fully with the investigative authorities. The company is also under investigation by law enforcement agencies in Japan, Britain and the United States.

Kikukawa's condominium house was among 20 sites raided in December by prosecutors. Kikukawa, who took over as president in 2001, was reportedly aware of the details of the cover-up.

Nakagawa, who began his banking career at Nomura Securities, was a founding member of the Axes group, which was awarded a $687 million advisory fee for Olympus' acquisition in 2008 of UK medical equipment firm Gyrus that was at the heart of the scandal.

Yokoo, another ex-Nomura banker, ran a consulting firm, Global Company, which was hired by Olympus in 2000 to scout for new businesses and steered investment into three small money-losing Japanese firms.

The scandal was exposed last October by then-chief executive Michael Woodford, a rare foreign CEO in Japan, who was sacked by the Olympus board after questioning dubious M&A deals that were later found to have been used to conceal the losses.

The affair also fanned concerns about lax corporate governance in Japan generally.

Olympus in December filed five years' worth of corrected financial statements plus overdue first-half results, revealing a $1.1 billion dent in its balance sheet, triggering talk it would need to merge or forge a business tie-up to raise capital.

On Monday, it forecast a $410 million full-year loss due largely to its ailing camera operations, but its core endoscope business appeared unscathed by the scandal, and its president said the firm might not need outside capital.

Olympus shares were down 1.8 percent at 1,280 yen on Thursday in a flat overall market.

($1 = 78.3350 Japanese yen)

(Additional reporting by Mari Saito, Writing by Linda Sieg and Chris Gallagher, Editing by Ian Geoghegan)

PARIS – European markets pulled back from earlier gains Wednesday and the euro fell as concerns grew that Greece’s creditors aren’t ready to hand over bailout loans needed to avert a default and that the money might not be sufficient anyway.

In earlier trading, markets rode news that China was still willing to invest in Europe and that Greece would fulfill all the obligations imposed by its international creditors. Those include making up a euro325 million ($425 million) funding gap and presenting written guarantees that the governing coalition’s party leaders would carry out the plan if they come to power. That seemed to indicate that when European leaders hold a conference call in the evening, they would green light a euro130 billion ($170 billion) bailout, Greece’s second.

But impatience with Greece, which has often missed deficit targets and been slow to respond to European demands, has been growing. And by Wednesday afternoon, a European official warned Greece’s assurances might not be enough. He spoke on condition of anonymity, citing policy.

There are concerns that after the elections, expected in April, Greek politicians might renege on promises made to their European colleagues. Greek leaders are in a tight spot, caught between a population enraged by painful budget cuts and international creditors who are demanding austerity in return for helping to stave off a potentially catastrophic default.

For weeks, many analysts have wondered if the bailout loans would be enough given the size of Greece’s debts. Now, there is speculation they may not come in time anyway. Greece has a chunk of loans coming due in March.

Allowing Greece to default is a gamble, and earlier in the day investors seemed confident that European officials wouldn’t dare risk it.

While Louise Cooper of BGC Capital said banks that hold Greek debt and governments are more prepared for a default than a few months ago, it is still risky. “We cannot know the impact of a Greek default until it happens,” she said.

But the mood turned more sour later in the day.

The euro erased its early gains, dropping 0.1 percent to $1.3145.

In France, the CAC-40 was up just 0.4 percent at 3,389; Germany’s DAX rose the same rate to 6,758. The FTSE index of leading British shares fell 0.1 percent to 5,895.

On Wall Street, markets struggled to get off the ground. The Dow Jones industrial average was down 0.3 percent at 12,839, while the broader S&P 500 was even at 1,351.

While many economists have advocated for a so-called orderly default, essentially allowing Greece to renege on all or most of its debts, others warn that would set a bad precedent.

“The ramifications from this are potentially catastrophic,” said David White, a trader for Spreadex. “Why would any member state act on Eurozone ministers’ demands when it’s been proven doubtful that what is promised in return might not be 100 percent deliverable?”

Greece’s European partners, meanwhile, are struggling with poor growth. On Wednesday, Eurostat figures showed that the economy for the 17 countries that use the euro contracted 0.3 percent in the final three months of 2011, a clear sign that Europe’s debt crisis has spared no country.

The decline followed a meager 0.1 percent increase in the previous three-month period and could signal the area is heading into recession, defined as two consecutive quarters of negative growth.

Slow growth has been one of the most damaging effects of Europe’s debt crisis, which forced many countries to savagely slash their budgets to reassure investors they would be able to pay off debts borrowed in boom times. But some observers have noted that cutting costs only exacerbates slow growth, which, in turn, exaggerates deficits.

To dig out of the vicious cycle, many have hoped for a rescue from the outside, particularly from China, which has vast foreign currency reserves. Chinese officials have been cautious to say they want to help Europe — their biggest export market — but that they have to make investments that are good for the Chinese. They have given no sign they would do more than continue to invest in the safest European government bonds.

China’s central bank governor, Zhou Xiaochuan, reiterated those ideas early Wednesday, but they boosted spirits in Europe, nonetheless, underscoring how eagerly investors are hoping for a miracle.

Earlier, Asian shares rode news that Japan’s central bank would further loosen monetary policy, raising hopes that would lift its powerhouse export sector.

The Nikkei 225 index in Tokyo soared 2.3 percent to close at 9,260.34, its highest close since Aug. 5. South Korea’s Kospi gained 1.1 percent to 2,025.32, while Hong Kong’s Hang Seng jumped 2.1 percent to 21,365.23, its highest finish since Aug. 4.

Mainland Chinese shares advanced with the benchmark Shanghai Composite Index climbing 0.9 percent to 2,366.70, its highest close this year. The Shenzhen Composite Index gained 1.5 percent to 925.99.

Benchmark oil for March delivery moved up 84 cents to $101.58, also brushing off troubles in Greece to focus on tensions in the Middle East that could lead to a tightening of supplies.

___

Associated Press writers Gabriele Steinhauser in Brussels, Pamela Sampson in Bangkok, Pan Pylas in London and Joe McDonald in Beijing contributed to this report.

LONDON – Markets remained optimistic Thursday that Greece will secure its next bailout despite an 11th hour snag that has delayed the signing off of another batch of austerity measures.

The prevailing view in the markets appears to be that Greece will cobble together a deal with its creditors in return for bailout cash that will help it avoid defaulting on its debts next month when a big bond repayment is due — a scenario that could send shock waves all round the European economy.

“Time running out still does not appear to be impacting investor sentiment,” said Derek Halpenny, an analyst at Bank of Tokyo-Mitsubishi UFJ. “Confidence remains high that a deal is imminent.”

In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 5,889 while Germany’s DAX rose 0.6 percent to 6,792. The CAC-40 in France was 0.5 percent higher at 3,426.

The euro was also trading up 0.3 percent at $1.3278 and near two-month highs.

Wall Street was poised for a steady opening too, with Dow futures and S&P 500 futures unchanged.

A Greek deal had appeared to be imminent in the early hours of Thursday following marathon talks but the leaders of the three political parties supporting the government led by Prime Minister Lucas Papademos failed to accept the entire batch of new harsh austerity measures demanded by creditors. The talks stalled after the leaders balked at creditors’ demands to make euro300 million ($398 million) in pension cuts.

Even though a deal has yet to be signed, Finance Minister Evangelos Venizelos headed to Brussels to meet top EU officials, hoping to rescue the agreement and stave off bankruptcy.

He issued a dramatic plea to the coalition leaders to swiftly resolve their differences, warning that Greece’s “survival over the coming years” depends on the bailout and a related debt-relief agreement with private creditors.

“It will determine whether the country remains in the eurozone or whether its place in Europe will be endangered,” he said. “There is no room for any other expediency: we must look Greeks in the eye, look at the national interest and the interest of our children.”

Given the stakes involved, markets remain fairly confident a deal will be signed soon, though that’s been the view for days now.

The focus in the markets remains on Greece despite a raft of mixed earnings in Europe. While Germany’s Daimler AG saw its share price bounce around 5 percent following another strong performance from its Mercedes luxury car division, Swiss bank Credit Suisse AG and Dutch bank and insurance firm ING Groep NV were down around 3 percent after disappointing updates.

The attention over the rest of the day will likely remain on Greece, especially at the monthly press conference of European Central Bank president Mario Draghi after the bank’s expected decision to keep its benchmark interest rate unchanged at 1 percent.

Draghi will likely be asked at his press conference whether the bank will help lighten Greece’s debt loan by forgoing profits on euro55 billion ($72 billion) in Greek bonds it owns. The ECB could do that by selling the bonds to the eurozone bailout fund for what it paid for them, and the fund could then write them down, lightening Athens debt load.

“Any words that bank president Mario Draghi has to offer will be of note, especially if Draghi lets slip some of the frustration that is doubtless commonplace in the capitals and exchanges of Europe,” said Ben Critchley, a sales trader at IG Index.

The Bank of England will be in focus beforehand amid expectations that it will pump another 50 billion pounds ($79 billion) into the ailing British economy while keeping its own main interest rate at the record low of 0.5 percent.

The hope is that by increasing the amount of money in the financial system the purchases, known as quantitative easing or QE, will loosen credit for businesses and raise asset prices. Quantitative easing can be inflationary, but analysts say the bank has room to act.

Earlier, Asian shares were muted by Chinese inflation figures showed consumer prices rose 4.5 percent in January over a year earlier, up from the previous month’s 4.1 percent. The People’s Bank of China eased lending curbs in December to promote growth in the slowing economy but the unexpected jump in the cost of living could make the central bank wary of carrying out further steps to loosen credit.

On mainland China, the benchmark Shanghai Composite Index gained 0.1 percent to 2,349.59. The Shenzhen Composite Index gained 0.6 percent to 898.89.

Japan’s Nikkei 225 index closed down 0.2 percent to 9,002.24 while South Korea’s Kospi rose 0.5 percent to 2,014.62. Hong Kong’s Hang Seng slipped marginally to 20,010.01

Oil markets were fairly subdued as attention centered on the Greek bailout talks — benchmark oil for March delivery was up 56 cents to $99.27 per barrel in electronic trading on the New York Mercantile Exchange.

LONDON – Optimism over upcoming U.S. jobs figures helped stocks and the euro to rally on Friday despite further evidence that the 17-nation eurozone is heading for recession.

Following a run of fairly strong U.S. economic data, investors are increasingly confident that the world’s largest economy is over a soft patch from last summer, helping to offset the global economic impact wrought by Europe’s ongoing debt crisis.

Figures released Friday provided further evidence that the eurozone is heading for a recession. Eurostat, the EU’s statistics office, said retail sales dropped 0.4 percent during the month, in contrast to expectations for an increase of the same amount.

The December data reinforced expectations that the eurozone contracted during the fourth quarter of the year. Eurostat is due to publish its first estimate for the quarter on Feb. 15.

The highlight of the day in the markets will be the monthly U.S. nonfarm payrolls data. Expectations are that the U.S. economy generated around 150,000 jobs during January. Though that is unspectacular for an economy recovering from its worst recession since World War II, the amount of jobs being created is up from levels seen just a few months ago.

“Volatility is likely to remain low until these figures are out, with traders opting to sit and await news rather than heavily commit themselves,” said David Jones, chief market strategist at IG Index.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 5,823 while Germany’s DAX rose 0.4 percent to 6,682. The CAC-40 in France was 0.5 percent higher at 3,394.

Wall Street was also poised for a solid opening, though how it actually performs will hinge on the payrolls data, which are released an hour before the bell. Dow futures and the S&P 500 futures were both up 0.2 percent.

The euro was also garnering support alongside stocks — when appetite for risk is elevated, the euro often finds favour. It was trading 0.3 percent higher at $1.3177 despite the retail sales disappointment.

The focus on the U.S. has proved a welcome diversion for some traders from monitoring the daily grind of Europe’s debt crisis, where much hinges on whether Greece can secure a deal with its private creditors, as is anticipated. A deal is expected soon, though that has been the official line for a few weeks.

Earlier in Asia, the picture was mixed.

Japan’s Nikkei 225 index fell 0.5 percent to close at 8,831.93 but Hong Kong’s Hang Seng ended marginally higher at 20,756.98.

Mainland Chinese shares extended gains fueled by news of fresh support for the farming and small-business sectors, with the benchmark Shanghai Composite Index rising 0.8 percent to 2,330.41 while the Shenzhen Composite Index added 1.5 percent to 878.29.

Oil markets were also relatively subdued. Benchmark oil for March delivery was up 40 cents to $96.76 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

(Reuters) – The captains of Wall Street have picked a presidential candidate for 2012 and it is Republican Mitt Romney, rather than Democratic President Barack Obama, campaign donation records show.

The records released Tuesday by the Federal Election Commission illustrate a basic shift in political giving at the presidential level by the nation's financial elite.

After a fling with Obama – the charismatic Democrat embraced four years ago during the severe credit crisis that erupted under President George W. Bush – Wall Street is backing Romney in a return to its largely Republican inclinations.

Romney's six largest campaign contribution sources in 2011 were executives, family members and affiliated political action committees of Goldman Sachs, JPMorgan Chase, Morgan Stanley, Credit Suisse, Citigroup and Bank of America, according to the Center for Responsive Politics, a Washington, D.C.-based group that monitors campaign finances.

The center said that the leaders of the six Wall Street giants — which were rescued from ruin by U.S. taxpayers about three years ago — have given $1.8 million to the Romney campaign.

As for Obama, Goldman Sachs was the sole major financial firm ranked among his top 20 contribution sources for 2011, with gifts of just $64,000 compared with $496,000 to Romney.

As they line up behind Romney, banks and investment firms are being joined by a new generation of hedge fund and private equity managers with deep pockets.

They are backing the candidate who comes from their ranks — Romney, a former private equity executive.

"The financial industry has preferred Romney from the beginning when he started his campaign," said Viveca Novak, spokesperson for the center. "He is of their world. They believe he understands them. So, not surprising they would favor him."

Newt Gingrich, Rick Santorum and Ron Paul, the other three Republican presidential contenders, have received very limited support from the financial sector.

FINANCE ON TOP AGAIN

As usual, the finance/insurance/real estate sector is leading all others on the campaign donors list, the center said.

Even after the 2008 financial crisis and the 2010 passage of the Dodd-Frank laws that put new restrictions on the banks and markets, "the power of Wall Street in Washington is unmitigated," said Richard Parker, a public policy lecturer at Harvard University's Kennedy School of Government.

The sector had donated more than $23 million to presidential campaigns as of December 5, the center said. And there are nine months to go before the elections for president and Congress.

Wall Street money, like funds from other walks of life, is pouring in both as traditional campaign donations, which are limited to $2,500 per donor, and as unlimited gifts to Super PACs.

The Super PACs are the legacy of a 2010 Supreme Court decision that unlimited donations by individuals, corporations and unions to groups that operate independently from campaigns.

Working through Super PACs, a few wealthy managers of top hedge funds and private equity firms are pumping money into the political process at unprecedented levels.

Seven of them have given more than $5 million combined to Restore Our Future, a Super PAC that backs Romney. That was more than Obama's Super PAC, called Priorities USA, raised in all of last year. Priorities USA's donor list is topped by labor unions.

Leading supporters of Romney from the financial industry include hedge fund managers Robert Mercer, Julian Robertson, Paul Singer and Chris Shumway, as well as private equity leaders Miguel Fernandez and Steven Webster.

Each has given at least $250,000 to the pro-Romney Super

PAC.

Hedge funds and private equity firms also have been a key source of traditional campaign gifts to Romney.

He has taken in more than $850,000 from executives at firms such as HIG Capital, Blackstone Group, Elliott Management, Citadel Investment and Bain Capital, the firm he co-founded.

NEW PLAYERS ARRIVE

Private equity and hedge fund managers arrived on the political scene in 2005.

That was when Congress began scrutinizing the "carried interest" tax break that lets these managers pay a tax rate on much of their earnings that is much lower than the top U.S. income tax rates.

The first private equity lobbying group was set up in 2006, a month after Democrats won control of both houses of Congress.

More than five years later, the "carried interest" tax break remains in place, although Democrats still say they may seek to eliminate it as part of a plan to trim the federal budget.

Hedge funds and private equity firms are keen to protect the tax break, while Wall Street banks want to roll back portions of Dodd-Frank or, at least, minimize the costs and restrictions it imposes on them as U.S. regulators continue to implement it.

Democrats' threats to close the carried interest loophole, coupled with their strong support for Dodd-Frank regulations and Obama's frequent verbal jabs at the banks, have opened a rift between him and the industry that briefly embraced him three years ago, said American University Professor Leonard Steinhorn.

When Obama came to power, the industry assumed it would have cozy ties with him, as it had with President Bill Clinton in the 1990s.

At first, it did. Then the economy tanked and Obama began to criticize bankers for their role in the credit crisis. Such criticism from a president was a jolt to leading bankers, who were accustomed to flattery from Washington.

"These are people who were totally alienated from Obama when he stopped praising them. Some of them got bitter. These are folks with large egos who like to be stroked," Steinhorn said.

Many bankers have felt uneasy in recent years with the social conservatives who have gained power in the Republican Party, but the bankers likely feel they can relate to Romney, analysts say.

"Romney is one of them," Steinhorn said. "So they can feel comfortable with him."

(Editing by David Lindsey and Cynthia Osterman)

WIESBADEN, Germany (Reuters) – Deutsche Boerse's (DB1Gne.DE) home regulator, the Hessian Minister of Economics, said the German exchange operator has failed to address concerns about the proposed takeover of NYSE Euronext (NYX.N), throwing up another hurdle to the deal.

"We made it clear in discussions in November that we have legal reservations about the deal," Dieter Posch told reporters on Monday.

The ministry said concessions offered by Deutsche Boerse had not addressed its concerns. The ministry, based in Wiesbaden, Germany, has the power to revoke Deutsche Boerse's operating license, a key prerequisite to a successful deal.

The Hessian ministry will give its final verdict on the takeover after antitrust authorities in Brussels have ruled on the deal. A ruling from the European Commission was expected this week. The deal has met intense scrutiny from the European Union.

(Reporting By Andreas Kroner; Writing by Edward Taylor; Editing by Dan Lalor)