“We’ll continue to make steady and determined efforts to move ahead with negotiations,” Noda said, stressing the need to sign a peace treaty with Russia.

The four islands – which Russia calls the Southern Kurils and Japan calls the Northern Territories – has been the subject of a territorial dispute between the two nations since the end of World War II. Because of it, the countries have also not yet signed a peace treaty to end the war.

Last year, Russian President Dmitry Medvedev sparked a diplomatic row with Tokyo by making the first ever visit by a Russian leader to the islands. He later said Russia would increase its military presence there.

Japan’s then prime minister Naoto Kan called Medvedev’s visit an “inexcusable rudeness.”

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The Australian dollar leapt to a six-month high but stocks turned negative after the central bank held rates steady at a review when markets had positioned for a rate cut.

Opinions were divided over whether the wrangling over Greece’s debt restructuring talks would eventually be resolved or trigger contagion across other vulnerable euro zone countries, tempering risk-taking investments.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 0.4 percent to its highest since September 1, then reversed direction, and last stood barely changed.

Australian shares were among the big losers, ending down 0.5 percent — having been up before the central bank’s afternoon decision to hold rates steady.

Financial spreadbetters expected Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 to open flat.

Japan’s Nikkei average ended down 0.1 percent, slipping from a three-month high just shy of 9,000 hit on Monday.

“Concerns over the Greece issue are limiting real risk taking from investors, even if the environment generally appears to be improving,” said Tetsu Emori, a fund manager with Astramax Co. in Tokyo.

“I’d expect all concerned parties to eventually strike a deal because it is in nobody’s interest if Greece defaults. But a further delay in the debt talks will really hamper sentiment,” he said.

After resisting terms of a proposed new bailout deal which demands strict labour reforms and other austerity steps, Greek political leaders face crunch talks on Tuesday to clinch an agreement needed to avoid a debt default.

The full package must be approved by the euro zone, the European Central Bank and the International Monetary Fund before February 15 in order to complete legal procedures for a bond swap deal for a March 20 bond redemption.

Moreover, some euro zone countries require parliamentary approval to raise the bailout money.

RATE DIFFERENCES

The euro eased 0.2 percent to $1.3107, although it had recovered from an overnight low of $1.3026.

The single currency hit a new record low against the Australian dollar near A$1.2140, as wide interest rate differentials made the Aussie more attractive than the struggling euro.

The Australian dollar jumped more than one cent to a six-month high of $1.0812 after the Reserve Bank of Australia unexpectedly kept interest rates steady at 4.25 percent, although it kept the door open to an easing if conditions deteriorated.

“In the absence of a messy Greek default, there is nothing really at the moment that’s going to stop the Aussie from going and testing all-time highs,” said David Scutt, a trader at Arab Bank Australia. It hit a 30-year peak of $1.1081 in July.

The dollar was up 0.3 percent against the yen at 76.72. Data from Japan’s Finance Ministry on Tuesday confirmed that Tokyo conducted stealth foreign exchange intervention in October-December, even after a massive intervention on October 31 when the yen hit a record high around 75.31.

Commodities retreated with the dollar’s gain against a basket of major currencies.

U.S. crude futures eased after rising above $97 a barrel, while Brent slipped after trading above $116 a barrel.

Spot gold was up 0.1 percent to $1,722 an ounce, trimming gains made earlier on an initial modest rise in equities.

Asian credit markets remained subdued, with the spreads on the iTraxx Asia ex-Japan investment grade index little changed, after tightening sharply on Monday.

The ECB’s generous funding in December and expectations ahead of another such liquidity operation scheduled on February 29 sent three-month Euribor rates, a main gauge of unsecured interbank euro lending, to 1.094 percent on Monday, the lowest level in nearly a year.

Analysts expect consolidation in several equity markets which have recently climbed to near resistance levels, which may then pave the way for a break higher.

India’s main 30-share BSE index is expected to find

major resistance at an October peak of 17,908, after rising as high as 17,829 on Monday.

Shanghai shares fell below a key support of 2,300 on Tuesday. A fall below 2,240-50 will reset the downtrend, while a break above 2,360 points to an eventual move higher.

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The first demonstration demands fair elections at the March 4 presidential polls, at which Putin is expected to secure a third term in the Kremlin. It also calls on Russians “not to give a single vote” to Putin.

The opposition rally is widely seen by analysts as a litmus test of protesters’ ability to maintain momentum after two earlier protests against alleged vote fraud in favor of Putin’s United Russia party at December’s parliamentary polls.

“We are prepared for a long tough struggle,” protest organizer and opposition figure Boris Nemtsov on the eve of the rally. “One peaceful march will not change the country.”

Around 30,000 have signed up on social networks to attend the demonstration. The protests are to include a march through downtown Moscow and a rally across the Moskva River from the Kremlin. The two previous rallies drew an estimated combined total of 100,000 people.

Protesters were set to gather by the downtown Oktyabrskaya station starting 12 p.m. local time, when temperature in Moscow stood at minus 22 degrees Celsius.

President Dmitry Medvedev, widely seen as Putin’s junior partner in Russia’s ruling tandem, proposed a host of political reforms after the initial vote protests, including the return of direct elections for regional governors and easier registration for political parties and presidential candidates. His proposals were dismissed by protest leaders on Friday as “imitation reforms.”

Putin has also ordered the installation of video cameras at polling stations and has encouraged independent monitors to oversee the presidential vote.

The organization of Saturday’s march has seen the involvement of the Voters League, a freshly-minted public group that claims no involvement in politics and is led by popular figures such as novelist Boris Akunin, TV journalist Leonid Parfyonov and rock musician Yury Shevchuk.

A separate rally, expected to draw some 15,000 people, will urge protesters to resist what organizers say are attempts to instigate an Orange Revolution in Russia. So-called Color uprisings took place in the former Soviet republics of Ukraine and Georgia in the early 2000s after contested presidential elections.

Putin thanked late on Friday those people who planned to attend the rally in his support.

“I share their views,” he said.

There have been numerous reports in the Russian media of state employees being coerced to attend the Anti-Orange rally, but the authorities have said these are untrue or the actions of over-zealous, low-level officials.

Both demonstrations have been authorized by City Hall. Moscow police say they will deploy 9,000 officers to maintain order at the rallies.

Rallies by both the opposition and Putin’s supporters took place in cities across Siberia and the Far East, most of them gathering several hundreds of protesters. An opposition rally in Novosibirsk was attended by an 1,500 to 2,000 people, according to police estimates, while a pro-Putin indoors rally in far eastern Birobidzhan had 600 participants, organizers said.

Police said some 11,000 gathered for the opposition rally at Moscow’s Kaluzhskaya Ploshchad as of 12:30 a.m. Saturday, though video feed from the site indicated the figure was considerably higher.

About 35,000 were in attendance for the rally in support of Prime Minister Vladimir Putin on Poklonnaya Gora an hour before its scheduled start at 1 p.m., Moscow police said. No video feed from the site was available at the time.

“People keep on arriving, the situation is changing constantly,” police said in a statement.

Police estimates of attendance during two previous opposition rallies in December were considerably lower than those by organizers and independent observers.

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During her three-day trip to the world’s second largest economy, Merkel praised the advantages of the single currency and urged China to put pressure on Iran and to condemn Syria at the United Nations.

Merkel, who was prevented from meeting journalists and a human rights lawyers, ended her official visit in the southern city of Guangzhou, Xinhua news agency reported.

Merkel, who held talks with Premier Wen Jiabao and President Hu Jintao during her visit, had said that she would raise human rights issues during the trip.

She attended a business forum with Wen, who Friday said China had neither the intention nor ability “to buy Europe”.

Experts believe China holds more than $550 billion of European sovereign debt, although the figure has not been officially confirmed.

Merkel and French President Nicolas Sarkozy will preside Monday over the 14th Franco-German council of ministers, which will be largely devoted to the eurozone financial crisis.

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The Foreign Ministry said Friday the recent activity had taken place within Chinese-controlled waters and was completely normal. A ministry statement said China was strongly dissatisfied with recent comments from Japanese officials.

Japan’s chief Cabinet secretary on Wednesday said Japan protested to China after a flare was seen a day earlier at a Chinese structure at an undersea gas deposit.

The deposit, known as Kashi in Japan and Tianwaitian in China, sits near a median line in the countries’ overlapping exclusive economic zones.

Japan and China agreed in 2008 to suspend unilateral exploration in that field while continuing talks.

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Doku Umarov, whose Caucasus Emirate group claimed atrocities including a deadly Moscow airport bombing in 2011 and a metro attack in 2010, said from now only security objects and officials would be targeted.

“I order all special groups that are carrying out or plan to carry out special operations in Russia to put a halt to these operations that could hurt the peaceful population,” Doku Umarov said in a video address posted on the rebel mouthpiece kavkazcenter.com.

“Today’s events in Russia have shown us that Russia’s peaceful population does not support Putin’s Chekist regime and are hostages of a regime that is fighting against Islam in the Caucasus.”

A “Chekist” is a commonly used term in Russian for an employee of the security services, who are hugely prominent in Russia under Putin who is himself a former KGB agent.

His once iron grip on the country has been shaken by a series of mass protests against his rule ahead of March 4 presidential elections where he is seeking a historic third Kremlin term.

“If this peaceful population does not take part in the war against Islam, our religion tells us to take care of this peaceful population and not to touch them,” said Umarov.

“This population definitely does not support Putin,” he added.

The video showed Umarov — who over the last years has eluded numerous attempts by Russia on his life — sitting in khaki fatigues in snow-covered woods flanked by two bearded comrades.

He said after the halt on civilian attacks, special operations should be carried out “with precision against the security services, the special services and the reprobate who are officials and are enemies of Allah,” he added.

Kavkaz Center said that with this “decree” Umarov had “changed the status” of the Russian population.

Umarov claimed to have organised suicide bombing at Moscow’s largest airport in January 2011 that killed 37 as well as the double bombings carried out by two female suicide bombers on the Moscow metro in March 2010 that killed 40 people.

His group has been seeking to impose an Islamist state throughout Russia’s mainly Muslim Northern Caucasus region and has for years been waging deadly insurgency against the Russian security forces there.

The Kremlin fought two wars against separatists in Chechnya after the fall of the Soviet Union but the rebellion then became more Islamist in tone and also spread to neighbouring Ingushetia and Dagestan.

Putin rose to power as prime minister under president Boris Yeltsin in 1999 and immediately won prominence with his hard line on the Chechnya conflict, including his notorious promise to kill the rebels “even in the outhouse”.

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China is “willing to cooperate with Europe to fight the current crisis. Some people say this means China wants to buy Europe”, Wen told a German-China business forum in the southern city of Guangzhou.

“This a concern and doesn’t fit reality. China doesn’t have this intention and doesn’t have this ability.”

German Chancellor Angela Merkel, in China for a three-day visit to boost her host’s confidence in Europe, also attended the forum along with executives from the energy, chemicals, engineering, banking and electronics sectors.

There are growing concerns in Europe that a recent wave of investment by Chinese companies and government-backed funds will give Beijing too much influence over struggling European economies.

In the latest deal, China State Grid has agreed to pay 387 million euros ($508.2 million) for a 25 percent stake in the national electricity grid of debt-stricken Portugal, Treasury Secretary Maria Albuquerque said Thursday.

European leaders have called on China, which has the world’s largest foreign exchange reserves, to invest in a bailout fund to rescue debt-stricken countries.

China has so far made no firm commitment to provide financial assistance, although Wen said Thursday it was considering getting more involved in bailout funds through the International Monetary Fund.

Analysts say bargain-hunting is behind the recent acquisitions by Chinese companies seeking to expand overseas. The country’s sovereign wealth fund has also sought to diversify away from US bonds.

At the forum Wen also touched on the politically sensitive topic of rare earths — 17 elements crucial in the manufacturing of many high-tech products — amid accusations China unfairly restricts exports of the valuable minerals.

China — the world’s largest producer of rare earths — “has no discrimination when it comes to foreign companies”, Wen told the forum.

State media said this week Beijing was bracing for renewed calls to ease its rare earths controls after the World Trade Organization ruled the country’s limits on key raw material exports broke trade rules.

Merkel, who earlier Friday held talks with President Hu Jintao and the country’s top legislator Wu Bangguo in Beijing, had said that she would raise human rights issues during her visit.

Rights lawyer Mo Shaoping, whose clients include jailed Nobel Peace Prize winner Liu Xiaobo, told AFP Friday that police had prevented him from meeting with Merkel at a reception at the German Embassy on Thursday.

Mo said police told him he was not allowed to attend the meeting due to concerns over social stability ahead of a key Communist Party meeting slated for late this year that will usher in a 10-yearly leadership transition.

The German embassy in Beijing did not immediately comment on the absence of Mo, who also defended the jailed rights lawyer Gao Zhisheng.

Merkel’s visit to Guangdong province will include a meeting with Gan Junqiu, the state-backed Catholic bishop of Guangzhou — the provincial capital — a German diplomatic source said, before returning to Germany on Saturday.

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The 238 known survivors arrived by five vessels at the city of Lae. Many were undergoing medical tests, according to Capt. Nurur Rahman, rescue coordinator with the country’s National Maritime Safety Authority.

About 350 people were aboard the MV Rabaul Queen when it sank Thursday, said Rahman.

The MV Rabaul Queen went down about 16 kilometers (10 miles) off Cape Fortification in the Vitiaz Strait after getting into trouble early Thursday, officials said.

The ferry is about 1,000 meters (3,280 feet) below the surface, Rahman said.

After an alert was sent out, boats and helicopters rushed to the scene to try to save scores of people left adrift at sea by the sinking. They had to deal with high winds and ocean swells.

Joanne Meehan of the Australian Maritime Safety Authority told CNN two of that country’s aircraft were assisting in the search.

Australia is Papua New Guinea’s closest neighbor minus Indonesia, with which it shares a border.

“I’m pleased that a large number of people have been rescued,” said Kevin Rudd, the Australian foreign minister. “We’re deeply concerned about those who are still missing.”

Rudd said he didn’t have any information on the nationalities of the passengers aboard the ship.

“This is a difficult operating environment,” he said. “We are doing everything within our power.”

The Rabaul Queen was ferrying passengers from the town of Kimbe on New Britain Island to Lae when it got into difficulty.

“Taking ferries is the most economic method of transport for people traveling between the islands and the mainland,” Rahman told CNN. “What I understand from local media is that a lot of students and their parents were traveling to schools that recently reopened on the mainland.”

Jurgen Ruh, the chief executive of Manolos Aviation Ltd. in Lae, was in one of the helicopters that helped with the rescue effort.

“I could see the survivors on the debris,” he said, noting that the passenger ship had sunk completely by the time he reached the scene.

There were about 10 life rafts visible, each with roughly 10 people on them, the first time his helicopter flew overhead, he said. However, when the helicopter returned to the area after refueling, no more survivors were spotted.

The weather was likely to be a contributing factor in the ferry’s sinking, Ruh said, as there were high winds at the time in what is a notorious area.

Papua New Guinea had a population of 6.7 million in 2010, the U.S. State Department says, with about 190,000 people living in Lae. Most of the population is scattered in small settlements across the state’s many islands.

The largely Christian country is part of the Commonwealth and has Queen Elizabeth II as head of state. The bulk of the estimated 2,000 American residents in Papua New Guinea, are missionaries and their families, the State Department says.

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China “is investigating and evaluating concrete ways in which it can, via the IMF, get more deeply involved in solving the European debt problem through [European Stability Mechanism/European Financial Stability Facility] channels,” Mr Wen said in a joint press conference with German Chancellor Angela Merkel in Beijing.

The comments have revived hopes that China, which holds by far the world’s largest foreign exchange reserves, could add some of this $3.2tn cash pile to existing and future European bail-out funds.

European officials said they believed Beijing had clearly changed its position and more concrete terms of any Chinese contribution were likely to be discussed in two weeks at a delayed EU-China summit.

Mr Wen said it was increasingly “urgent” that a solution be found to the European debt crisis and he called on the international community to co-operate towards that end. The euro rose about half a per cent against the US dollar soon after his words were reported.

Chinese officials have long signalled their willingness to contribute to global efforts to bail out Europe but have also made clear Beijing would not take the lead and would like to see more convincing efforts from Europe’s own governments to resolve the crisis.

European leaders last year agreed to leverage the approximately €250bn left in the eurozone’s rescue fund, the European Financial Stability Facility, as a way to make the EU’s dwindling bail-out resources go further.

One option would be for China to put money into a so-called “co-investment fund” which Klaus Regling, the EFSF chief, has been promoting to public and private investors across the world, including Chinese sovereign wealth funds.

Ms Merkel is in China on a three-day mission to reassure Beijing that Europe is able to tackle its mounting debt problems.

She told an audience of Chinese scholars on Thursday that European countries were taking serious steps to rein in debt and strengthen growth.

“I want to tell you: The euro has strengthened Europe,” Ms Merkel said in a speech at the Chinese Academy of Social Sciences, one of the country’s leading academic institutions, which functions as a think-tank for the government. “This is not a crisis of the euro, it is a debt crisis and a crisis of different levels of competitiveness,” she said.

Ms Merkel’s visit comes just days after the EU decision to make the budget discipline required from the 17 euro economies part of national law, which she had been pushing for strongly.

Ms Merkel, who is scheduled to meet President Hu Jintao on Friday, also stressed that she would press her Chinese counterparts to support actions against Iran and Syria, two of the countries that top the global political agenda.

Acknowledging Beijing’s opposition to a new round of sanctions against Iran, Ms Merkel said it could use its influence to tell Iran to be more transparent about its nuclear programme.

But questions from the audience showed that China’s focus is clearly on Europe. Ms Merkel said the financial crisis required every eurozone member country to “do their homework”, but also solidarity among the group, and claimed that Europe was growing together in the crisis.

That contrasts with Chinese perceptions that the euro group is plagued by frequent friction and difficulties in communicating a clear common agenda.

In response to a question, Ms Merkel said European countries were looking into whether there was a way to limit the negative fallout from sovereign ratings downgrades in financial crises. “We must face [rating agencies'] judgment, they tell the truth,” Ms Merkel said. “But [ratings decisions] can have a reinforcing effect on a crisis.”

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China, the world’s second-biggest economy, has watched with increasing concern as eurozone economies have deteriorated, and has repeatedly urged European leaders to get a grip on the situation.

Merkel’s meeting with President Hu Jintao came a day after talks with Premier Wen Jiabao, who said Beijing was looking at ways it could contribute to Europe’s bailout funds and warned of an “urgent” need to solve the debt crisis.

“China is investigating and evaluating ways, through the International Monetary Fund, to be more deeply involved in solving the European debt problem via ESM/EFSF channels,” Wen said at a news conference with Merkel.

Wen was referring to the European Financial Stability Facility, a temporary rescue fund that was established to help struggling economies in Europe, and the European Stability Mechanism — a newer, permanent fund.

Hu told Merkel before their closed-door meeting Friday that her visit would “increase mutual understanding” between the two countries, whose bilateral trade reached $169 billion in 2011, an 18.9 percent increase from the previous year.

Merkel, who will return to Germany on Saturday, said in a speech Thursday she would raise the issue of human rights during her visit.

After meeting Hu she flew to the southern province of Guangdong, where German companies already have a significant presence, with Wen and executives from the energy, chemicals, engineering, banking and electronics sectors.

Her visit to the manufacturing hub will include a meeting with Gan Junqiu, the state-backed Catholic bishop of Guangzhou — the provincial capital — according to a German diplomatic source.

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