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CAIRO (Reuters) - An Islamist minister quit Egypt's government on Thursday, the second cabinet resignation this week, as President Mohamed Mursi tries to shore up his authority and gather support for unpopular austerity measures.

An economic crisis and a battle over a new constitution have underlined bitter divisions between Islamist-backed Mursi and his liberal opponents and delayed a return to stability almost two years since a popular uprising.

Rivals accuse Mursi, who won Egypt's first freely contested leadership election in June, of polarizing society by foisting a divisive, Islamist-leaning constitution on the country and using the autocratic ways of his deposed predecessor Hosni Mubarak.

Deadly violence preceded a referendum on the basic law, dealing a blow to a struggling economy. Mursi's political rivals refused to accept the result - the text won about 64 percent in the vote - and they reject his call for national unity talks.

In a move that may pre-empt a planned reshuffle, parliamentary affairs minister Mohamed Mahsoub announced he was quitting because he disagreed with the slow pace of reform.

"I have reached a clear conclusion that a lot of the policies and efforts contradict my personal beliefs and I don't see them as representative of our people's aspirations," he said in his resignation letter, which has yet to be accepted by the prime minister.

Communications Minister Hany Mahmoud quit earlier this week, citing his inability to adapt to the government's "working culture".

Neither were major figures in the cabinet but their decision to criticize the substance and style of Mursi's administration suggests his decisions are unnerving not just opponents but also some allies.

Earlier on Thursday, a Christian member of Egypt's upper house of parliament, Nadia Henry, quit a day after the Islamist-dominated chamber took over legislative authority under the new constitution.

The charter crafted by an Islamist-dominated assembly is meant to be the cornerstone of a democratic and economically stable Egypt after decades of authoritarian rule. The opposition says it does nothing to protect minorities.

Mursi says the constitution and an upcoming vote to re-elect the lower house of parliament will help end squabbling among feuding politicians.

He and his Muslim Brotherhood allies say ordinary people are fed up with street protests that often turn violent and want the government to focus on urgent bread-and-butter issues.

The strife has cast doubt on the government's ability to push through the spending cuts and tax hikes needed to secure a vital $4.8 billion International Monetary Fund loan.

The Egyptian pound tumbled to its weakest in almost eight years against the dollar this week as people rushed to withdraw savings from banks.

Egypt's defense chief said the army - which dominated Egypt for decades and has wide ranging business interests - was ready to step in to help the economy.

"The Egyptian economy is going through a very difficult stage," Abdel Fattah al-Sisi was quoted as saying by state news agency MENA. "The armed forces are keen to participate in development and service projects in all parts of Egypt as part of its promise to serve the great people."

CRISIS MODE

The resignations come ahead of a promised cabinet reshuffle. Cabinet sources told Reuters as many as eight cabinet members from second-tier ministries might go next week.

Mursi is also promising incentives aimed at making Egypt - once a darling of emerging market investors - an attractive place to do business again.

The 270-seat upper house, or Shura Council, holds legislative authority until a new parliament is elected in early 2013. Opposition figures say they fear the Council could issue laws curbing freedoms.

Henry represents Anglican Christians in Egypt. In a letter published by state media, she said minority groups were not represented properly in the chamber.

Her resignation underscores fears by Egypt's Christians, who make up about a tenth of its 83 million population, about the gains by Islamists since Mubarak was ousted in 2011.

Mubarak, who was sentenced to life in prison in June, was moved to an army hospital on Thursday following a fall that raised concerns about his fragile health.

Under pressure to acknowledge Egypt's diversity, Mursi appointed 90 members including Christians, liberals and women to the Council - alongside figures from the Muslim Brotherhood and ultra-conservative Salafis - last week. Two-thirds of the upper house were already elected in a vote this year.

"We stress again that the nation should achieve internal reconciliation and forget its differences," the Muslim Brotherhood's supreme guide, Mohamed Badei, told Egyptians in his weekly message.

"Let's work seriously to end the reciprocal wars of attrition. We urgently need to unify ranks and group together and focus our capabilities and assets for the general benefit."

(Writing by Maria Golovnina; Editing by Tom Pfeiffer)

WASHINGTON (Reuters) - U.S. consumer confidence fell more than expected in December, hitting a four-month low as a looming fiscal crisis sapped what had been a growing sense of optimism about the economy.

The report heightened concerns that a failure by Washington to avert planned tax hikes and spending cuts could lead households to close their wallets, threatening an economic recovery that has been steady albeit lackluster.

Other data on Thursday highlighted the positive momentum building in the economy, with the number of Americans filing new claims for jobless benefits falling to a nearly 4-1/2 year low and new home sales hitting their highest level since April 2010.

But gauges of business sentiment have weakened recently on worries Washington will go forward with plans to slash the federal deficit by about $600 billion in 2013.

Now consumers also appear apprehensive, a sign worries about the so-called "fiscal cliff" could bite into household spending.

The Conference Board, an industry group, said its index of consumer attitudes fell to 65.1 from 71.5 in November.

A sub-index measuring how consumers feel about their present situation rose to its highest level in more than four years, but a gauge of sentiment about the future plunged to its lowest point in more than a year.

"Consumers are increasingly preoccupied with the potential damage the fiscal cliff will cause to the economy and to their wallets if a deal is not reached soon," economists at RBS in Stamford, Connecticut, wrote in a research note.

Separately, the Labor Department said initial claims for state unemployment benefits dropped 12,000 last week to a seasonally adjusted 350,000, the Labor Department said.

"This recent improvement in the claims data is potentially a favorable signal for the labor market," said Daniel Silver, an economist at JPMorgan in New York.

After spiking in the wake of a mammoth storm that ravaged the East Coast in late October, new claims have dropped to their lowest levels since the early days of the 2007-09 recession. The four-week moving average fell 11,250 last week to 356,750, the lowest since March 2008.

The claims data has no direct relation to the government's monthly employment report, but it suggests the surge in layoffs since the recession has at least run its course.

Still, many economists think hiring may remain sluggish even as the pace of layoffs ease.

Companies in recent months have been adding to their payrolls at a lackluster pace, and analysts expect the employment report due on January 4 will show 143,000 jobs were created in December, down from 146,000 in November.

"A significant improvement in labor market conditions ahead of any resolution to the fiscal cliff is unlikely," said Michael Gapen, an economist at Barclays in New York.

U.S. stocks opened flat but turned lower as the Senate Democratic leader derided Republicans for the lack of progress in budget talks and warned that a fall off the "cliff" appeared inevitable. Investors sought safety by buying U.S. Treasury debt and the dollar, which rose against the euro.

Following a truncated holiday break in Hawaii, U.S. President Barack Obama returned to Washington to restart talks to avoid the brunt of the fiscal cliff's impact, which would likely put the U.S. economy back into recession if not lessened.

HOLIDAY CAVEAT

The signs of progress in the claims data also included a caveat, at least for the latest week.

Obama declared Monday a holiday for federal workers and many state offices followed suit and were unable to provide complete data for last week's jobless claims. Data for 19 states was estimated, although 14 of those states submitted their own estimates, which tend to be fairly accurate.

The holiday season can make it more difficult to adjust the claims data for normal seasonal fluctuations, another reason to be cautious about the report for last week.

Separately, the Commerce Department said new U.S. single-family home sales rose in November to a 377,000-unit annual rate, while the median sales price jumped 14.9 percent from the same month in 2011, the latest signs the U.S. housing recovery is gaining some steam.

In a fourth report, the Chicago Federal Reserve Bank said its index of factory activity in the U.S. Midwest increased in November to 93.7 from a revised 92.2 in October.

(Reporting by Jason Lange; Additional reporting by Richard Leong and Ryan Vlastelica in New York; Editing by Neil Stempleman)

CAIRO (Reuters) - Egyptian President Mohamed Mursi signed into law a new constitution shaped by his Islamist allies, which he says will help end political turmoil and allow him to focus on fixing the fragile economy.

Anxiety about a deepening political and economic crisis has gripped Egypt in past weeks, with many people rushing to buy dollars and take out their savings from banks. The government has imposed new restrictions to reduce capital flight.

The new charter, which the liberal opposition says betrays Egypt's 2011 revolution by dangerously mixing religion and politics, has polarised the Arab world's most populous nation and prompted occasionally violent protest on the streets.

Results announced on Tuesday showed Egyptians had approved the text with about 64 percent of the vote, paving the way for a new parliamentary election in about two months.

The charter states that the principles of sharia, Islamic law, are the main source of legislation and that Islamic authorities will be consulted on sharia - a source of concern to Christians and others.

The win in the referendum is the Islamists' yet another electoral victory since veteran autocrat Hosni Mubarak was toppled in 2011, following parliamentary elections last year and the presidential vote that brought Mursi to power this year.

Mursi's government, which has accused opponents of damaging the economy by prolonging political upheaval, now faces the tough task of building a broad consensus as it prepares to impose unpopular austerity measures to prop up the economy.

The Egyptian pound came under renewed pressure on Wednesday as market players, worried about Egypt's economic health, sought to switch their funds into U.S. dollars and other currencies, traders said.

Keen to be seen as decisive, the government is now in talks with business figures, trade unions and other groups to highlight the need for tax increases to resolve the crisis.

Mursi has committed to such austerity measures to receive a $4.8 billion from the International Monetary Fund.

In Cairo's bustling centre, people expressed their frustration with economic instability openly as they went about their daily business.

"The country's going to the pits. Everything is a mess," Hamdy Hussein, a 61-year-old building janitor, said angrily. "It's worse than ever. Mubarak was better than now. People were living and there was security."

Ashraf Mohamed Kamal, 30, added: "The economic situation will be a mess in the next few years. It already is. People will get hungrier. People are now begging more."

TURMOIL CONTINUES

Mursi, catapulted into power by his Islamist allies this year, believes adopting the constitution quickly and holding the vote for a permanent new parliament will help end a protracted period of turmoil and uncertainty that has wrecked the economy.

Mursi's government argues the constitution offers enough protection to all groups, and that many Egyptians are fed up with street protests that have prevented a return to normality and distracted the government from focusing on the economy.

The charter gives Egypt's upper house of parliament, which is dominated by Islamists, full legislative powers until a vote for a new lower house is held. The chamber convened on Wednesday for the first time since the constitution's adoption.

While stressing the importance of political stability to heal the economy, Mursi's government has sought to play down economic woes and appealed for unity in the face of hardship.

"The government calls on the people not to worry about the country's economy," Parliamentary Affairs Minister Mohamed Mahsoub told the upper house in a speech.

"We are not facing an economic problem but a political one and it is affecting the economic situation. We therefore urge all groups, opponents and brothers, to achieve wide reconciliation and consensus."

Mursi is due to address the upper house on Saturday in a speech likely to be dominated by economic policy.

Sharpening people's concerns, the authorities imposed currency controls on Tuesday to prevent capital flight. Leaving or entering Egypt with more than $10,000 cash is now banned.

Al-Mal newspaper quoted Planning Minister Ashraf al-Araby as saying the government would not implement a series of planned tax increases until it completes a dialogue with different parts of society.

Adding to the government's long list of worries, Communications Minister Hany Mahmoud has resigned citing his "inability to adapt to the government's working culture".

The opposition has condemned the new basic law as too Islamist, saying it could allow clerics to intervene in the lawmaking process and leave minority groups without proper legal protection. It said the vote was marred by major violations.

Nevertheless, major opposition groups have not called for new protests, suggesting that weeks of civil unrest over the constitution may be subsiding now that it has passed.

The United States, which provides $1.3 billion a year in military aid plus other support to Egypt and sees it as a pillar of security in the Middle East, called on Egyptian politicians to bridge divisions and on all sides to reject violence.

NEW YORK (Reuters) - Stock index futures edged higher on Wednesday, indicating the S&P 500 may stem its worst two-day drop since mid-November, ahead of the resumption of "fiscal cliff" negotiations.

U.S. President Barack Obama is cutting short his Hawaiian holiday to leave for Washington on Wednesday to address the unfinished negotiations with Congress.

Obama is due to arrive in Washington on Thursday to resume talks on the cliff, a sharp rise in taxes and deep spending cuts due to begin on January 1 that could tip the U.S. economy into recession.

"This is what we've come to - the President might get on a plane today and this is what the markets might react to," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

"It's all about the fiscal cliff."

A Republican plan that failed to gain traction last week triggered the recent decline in the S&P 500 <.spx>, highlighting market sensitivity to headlines centered around the talks.

Investors will also look to housing data for signs of improvement in that sector of the economy, with the S&P Case/Shiller Home Price Index for October expected at 9 a.m. (1400 GMT).

Housing data has shown modest improvement in recent months, and continued strength could help support the sagging economy.

"The data is two months old, so it's interesting, but I don't know that people will react to it given these other more timely events," said Forrest.

S&P 500 futures rose 3 points and were slightly above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 17 points, and Nasdaq 100 futures climbed 3.25 points.

The benchmark S&P index is up 13.4 percent for the year, and has recouped nearly all of the losses suffered in the wake of the U.S. elections, when the fiscal cliff concerns moved to the forefront of investors' focus.

China's Sinopec Group and ConocoPhillips will research potentially vast reserves of shale gas in southwestern China over the next two years, state news agency Xinhua reported.

An outage at one of Amazon.com Inc's web service centers hit users of Netflix Inc's streaming video service on Christmas Eve and was not fully resolved until Christmas Day, a spokesman for the movie rental company said on Tuesday.

In Asian markets, the Nikkei moved to a new nine-month high but shares elsewhere in the region were capped in thin holiday trade, with investors focusing on the fate of U.S. negotiations to avert a budget crunch looming at the end of the year.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama)

WASHINGTON/HONOLULU (Reuters) - President Barack Obama is due back in Washington early Thursday for a final effort to negotiate a deal with Congress to avert or at least postpone the "fiscal cliff" of tax increases and government spending cuts set to begin next week.

No specific bill dealing with the cliff was on the schedule of either the U.S. Senate or House of Representatives, which are expected to return on Thursday after the holiday break. Investors are closely watching the talks, concerned that going over the cliff could throw the economy into recession.

Aides and members of Congress have said that a modest, last-minute measure to avoid the spending cuts and most of the tax hikes could pass the Democratic-controlled Senate if Republicans agree not use a procedural roadblock known as a filibuster, a commitment that Senate Republican leader Mitch McConnell has so far not made.

But to win approval in the Republican-controlled House of any bill that raises taxes on anyone, a rare bipartisan vote would be required. All 191 Democrats would have to team with up with at least 26 Republicans to get a majority if the bill included tax hikes on the wealthiest Americans, as Obama is demanding.

Some of those votes could conceivably come from among the 34 Republican members who are either retiring or were defeated in the November elections and no longer have to worry about the political fallout.

In the alternative, Congress could let income taxes go up on everyone as now scheduled and then during the first week of January, scramble and get a quick deal to cut them back except for the highest brackets, along with a measure putting off the $109 billion in automatic spending cuts that most lawmakers want to avoid.

Once the clock ticks past midnight on December 31, no member of Congress would have to vote for a tax increase on anyone - taxes would have risen automatically - and the only votes would be to decrease tax rates for most Americans back to their 2012 levels.

Obama and congressional lawmakers left Washington on Friday for the Christmas holiday with talks to avert the fiscal cliff in limbo.

The president will cut short his vacation in Hawaii and leave for Washington later on Wednesday, arriving in the capital on early Thursday.

Obama is expected to turn to a trusted Democratic ally, Senate Majority Leader Harry Reid, to help craft a quick deal.

White House aides began discussing details of the year-end budget measure with Senate Democratic counterparts early this week, a senior administration official said on Monday

(Reporting by Mark Felsenthal in Honolulu and Fred Barbash in Washington; Writing by Fred Barbash; Editing by Eric Beech)

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe said on Wednesday his government will pursue bold monetary policy, flexible fiscal policy and a growth strategy to encourage private investment.

"Japan won't have a future and won't be able to restore fiscal health without a strong economy," Abe told a news conference after taking office as the country's seventh prime minister in six years.

Abe has pledged to put top priority on beating deflation and taming the strong yen, which are dragging down the world's third biggest economy. He also wants to loosen the limits of Japan's post-World War Two pacifist constitution on the military and has vowed to take a firm stance in a territorial row with a rising China.

(Reporting by Leika Kihara and Stanley White; Editing by Edmund Klamann)

TOKYO (Reuters) - Incoming Japan Prime Minister Shinzo Abe is likely to pick policy veteran Toshimitsu Motegi as trade minister, who will also take charge of energy and other key economic policies, media reported on Tuesday.

Motegi, 57, a former policy affairs chief for the Liberal Democratic Party (LDP), will tackle energy problems after last year's Fukushima nuclear crisis, as well as issues such as the U.S.-led Trans-Pacific Partnership (TPP) free trade pact, public broadcaster NHK said.

Motegi was a leading member of the LDP's panel tasked with drafting an economic revival plan aimed at tackling the strong yen, deflation and preventing Japanese firms from shifting overseas.

The LDP returned to power in the December 16 election for the lower house, calling for radical monetary easing and big spending on public works.

First elected to parliament in 1993 as a member of a small opposition party, Motegi joined the LDP shortly thereafter and has served posts including parliamentary vice-minister for the trade ministry and senior vice-minister for foreign affairs.

Motegi's formal appointment is likely to be made on December 26, when Abe is expected to be elected as prime minister in parliament and form a new cabinet.

(Reporting by Tetsushi Kajimoto)