FBI: 2nd escaped bank robber caught in Palos Hills

The second inmate who made a daring escape last month from a high-rise federal jail in the South Loop was captured today in South Suburban Palos Hills, according to FBI officials.

Kenneth Conley, a convicted bank robber, was awaiting sentencing when he and cellmate Joseph “Jose” Banks scaled down the Metropolitan Correctional Center on Dec. 18 with a rope fashioned from bedsheets.

FBI Spokeswoman Joan Hyde said Conley was apprehended at an apartment complex at about 4 p.m. by Palos Hills police.

A law enforcement source said FBI agents and deputy U.S. Marshals returned to the area around Palos Hills this morning to canvass and talk to residents because Conley had been spotted there since his escape and was known to have contacts in the south suburbs.

By late afternoon a 911 call was placed to Palos Hills police reporting a sighting of Conley, possibly a result of the canvass, the source said.

Banks was apprehended late at night on Dec. 20 less than five miles from the jail in the home of a boyhood friend on the North Side.

Banks and Conley were last accounted for during a routine bed check, authorities said. About 7 a.m. the next day, jail employees arriving for work saw ropes made from bedsheets dangling from a hole in the wall near the 15th floor and down the south side of the facade.

The two had put clothing and sheets under blankets in their beds to throw off guards making nighttime checks and removed a cinder block to create an opening wide enough to slide through, authorities said.

The FBI said a surveillance camera a few blocks from the jail showed the two, wearing light-colored clothing, hailing a taxi at Congress Parkway and Michigan Avenue. They also appeared to be wearing backpacks, according to the FBI.

The daring escape was an embarrassment for the U.S. Bureau of Prisons and a rarity for the Metropolitan Correctional Center, where the only previous successful escape took place in 1985.

A high-ranking employee in the facility told the Tribune that video surveillance had captured the men making their descent, but that the guard who was supposed to be watching the video monitors for suspicious activity may have been called away on other duties.

asweeney@tribune.com

jmeisner@tribune.com

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Abbas sees Palestinian unity as Fatah rallies in Gaza

GAZA (Reuters) - President Mahmoud Abbas predicted the end of a five-year split between the two big Palestinian factions as his Fatah movement staged its first mass rally in Gaza with the blessing of Hamas Islamists who rule the enclave.

"Soon we will regain our unity," Abbas, whose authority has been limited to the Israeli-occupied West Bank since the 2007 civil war between the two factions, said in a televised address to hundreds of thousands of followers marching in Gaza on Friday, with yellow Fatah flags instead of the green of Hamas.

The hardline Hamas movement, which does not recognize Israel's right to exist, expelled secular Fatah from Gaza during the war. It gave permission for the rally after the deadlock in peace talks between Abbas's administration and Israel narrowed the two factions' ideological differences.

The Palestinian rivals have drawn closer since Israel's assault on Gaza assault in November, in which Hamas, though battered, claimed victory.

Egypt has long tried to broker Hamas-Fatah reconciliation, but past efforts have foundered over questions of power-sharing, control of weaponry, and to what extent Israel and other powers would accept a Palestinian administration including Hamas.

An Egyptian official told Reuters Cairo was preparing to invite the factions for new negotiations within two weeks.

Israel fears grassroots support for Hamas could eventually topple Abbas's Palestinian Authority (PA) in the West Bank.

"Hamas could seize control of the PA any day," Israeli Prime Minister Benjamin Netanyahu said on Thursday.

The demonstration marked 48 years since Fatah's founding as the spearhead of the Palestinians' fight against Israel. Its longtime leader Yasser Arafat signed an interim 1993 peace accord that won Palestinians a measure of self rule.

Hamas, which rejected the 1993 deal, fought and won a Palestinian parliamentary election in 2006. It formed an uneasy coalition with Fatah until their violent split a year later.

Though shunned by the West, Hamas feels bolstered by electoral gains for Islamist movements in neighboring Egypt and elsewhere in the region - a confidence reflected in the fact Friday's Fatah demonstration was allowed to take place.

"The success of the rally is a success for Fatah, and for Hamas too," said Hamas spokesman Sami Abu Zuhri. "The positive atmosphere is a step on the way to regain national unity."

Fatah, meanwhile, has been riven by dissent about the credibility of Abbas's statesmanship, especially given Israel's continued settlement-building on West Bank land. The Israelis quit Gaza unilaterally in 2005 after 38 years of occupation.

"The message today is that Fatah cannot be wiped out," said Amal Hamad, a member of the group's ruling body, referring to the demonstration attended by several Abbas advisers. "Fatah lives, no one can exclude it and it seeks to end the division."

In his speech, Abbas promised to return to Gaza soon and said Palestinian unification would be "a step on the way to ending the (Israeli) occupation".

(Editing by Dan Williams, Alistair Lyon and Jason Webb)

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Fed minutes short-circuit Wall Street rally

NEW YORK (Reuters) - U.S. stocks dipped on Thursday after signs the Federal Reserve has growing concern about its highly stimulative monetary policy, giving investors reason to pull back after a two-day rally.

The minutes from the Fed's December policy meeting, released on Thursday, showed increasing reticence about adding to the central bank's $2.9 trillion balance sheet, which it expanded sharply in response to the financial crisis and recession of 2007-2009.

Some policymakers thought asset buying should be slowed or stopped before the end of 2013 while others highlighted the need for further stimulus. The Fed's policy of easy credit has helped push the S&P 500 to a 13.4 percent gain in 2012. Ending that policy would remove an incentive for investors to purchase riskier assets like stocks.

"The surprise was the changes to duration and extent of that program in 2013, but given the tone in previous Fed meeting minutes, it should not have been an entire surprise," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

Despite the concerns about the effects of its asset purchases, the Fed look set to continue its open-ended stimulus program for now.

Stocks pushed the S&P 500 index 4.3 percent higher in the previous two sessions. On Thursday investors turned their focus to coming battles in Congress, including the likelihood of bitter fights over budget cuts and raising the federal debt ceiling.

"We were definitely technically extended and ripe for a little bit of a consolidation and today is very orderly - traders and investors are still trying to digest the language and the details from the 2012 taxpayer act," Dickson said.

The Dow Jones industrial average <.dji> dropped 21.19 points, or 0.16 percent, to 13,391.36. The Standard & Poor's 500 Index <.spx> shed 3.05 points, or 0.21 percent, to 1,459.37. The Nasdaq Composite Index <.ixic> lost 11.70 points, or 0.38 percent, to 3,100.57.

Economic data showed U.S. private-sector employers shrugged off a looming budget crisis and stepped up hiring in December, offering further evidence of underlying strength in the economy as 2012 ended.

The government's broader monthly payrolls report, due on Friday, is expected to show the economy created 150,000 jobs compared with 146,000 in November, according to a Reuters poll. The U.S. unemployment rate is seen holding steady at 7.7 percent.

Retailers advanced after several major companies in the sector beat expectations of modest sales increases in December, with the S&P retail index <.spxrt> up 0.4 percent.

Shares in Costco Wholesale Corp rose 1 percent to $102.49 after the company reported a better-than-expected 9 percent rise in December sales at stores open at least a year.

Gap Inc stock climbed 2.3 percent to $32.09 following news that the retailer will buy women's fashion boutique Intermix Inc, the Wall Street Journal reported.

Family Dollar Stores Inc stumbled 13 percent to $55.74 on the company's report of lower-than-expected quarterly profit.

Volume was relatively strong, with about 6.68 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, slightly above the 2012 daily average of 6.42 billion.

Advancing stocks outnumbered declining ones on the NYSE by 1,692 to 1,321, while on the Nasdaq, decliners beat advancers 1,287 to 1,187.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

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NHL, union briefly resume labor talks

NEW YORK (AP) — After a long night of talks, the NHL and the union returned to the bargaining table, but not for long.

The sides met at the league office Thursday about three hours later than scheduled. The players' association said it had been updating members on negotiations.

Players and union staff began arriving at NHL headquarters a little before 1 p.m. EST, although executive director Donald Fehr wasn't with them. The group left the building about an hour later but expected to return later in the day.

With the lockout in its 110th day, both sides understand the urgency to save a shortened season. They have several key issues to work out — pensions and salary cap limits, among them.

Commissioner Gary Bettman has said a deal needs to be in place by next week so a 48-game season can begin Jan. 19. All games through Jan. 14 along with the All-Star game have been canceled, claiming more than 50 percent of the original schedule.

The sides met in small groups throughout the day Wednesday. They held a full bargaining session with a federal mediator at night that lasted nearly five hours and ended about 1 a.m. Thursday.

The biggest detail to emerge was that Fehr remains executive director of the players' association, which passed on its first chance to declare a disclaimer that would dissolve the union and turn it into a trade association.

Last month, players voted overwhelmingly to give its executive board the right to declare the disclaimer, but that permission expired at midnight Wednesday. The disclaimer would allow individual players to file antitrust lawsuits against the NHL. Fehr wouldn't address the issue, calling it an "internal matter."

"The word disclaimer has yet to be uttered to us by the players' association," Bettman said. "It's not that it gets filed anywhere with a court or the NLRB. When you disclaim interest as a union, you notify the other side. We have not been notified and it's never been discussed, so there has been no disclaimer."

It was believed the union wouldn't take action Wednesday if it saw progress. Neither side would characterize the talks or say if there was any movement toward common ground.

"There's been some progress but we're still apart on a number of issues," Bettman said. "As long as the process continues I am hopeful."

In a related move, the NHLPA filed a motion in federal court in New York on Thursday seeking to dismiss the league's suit to have the lockout declared legal. The NHL sued the union in mid-December, figuring the players were about to submit their own complaint against the league and possibly break up their union to gain an upper hand.

But the union argued that the NHL is using this suit "to force the players to remain in a union. Not only is it virtually unheard of for an employer to insist on the unionization of its employees, it is also directly contradicted by the rights guaranteed to employees under ... the National Labor Relations Act."

A deal can't be done without a resolution on pensions. Bettman called the pension plan a "very complicated issue." A small group meeting on the pension issue was held Wednesday morning before the players' association presented its offer.

"The number of variables and the number of issues that have to be addressed by people who carry the title actuary or pension lawyer are pretty numerous and it's pretty easy to get off track. That is something we understand is important to the players."

The union's proposal Wednesday makes four offers between the sides since the NHL restarted negotiations Thursday with a proposal. The league presented the players with a counteroffer Tuesday night in response to one the union made Monday.

Fehr believed an agreement on a players-funded pension had been reached before talks blew up in early December. That apparently wasn't the case, or the NHL has changed its offer regarding the pension in exchange for agreeing to other things the union wanted.

The salary-cap number for the second year of the deal — the 2013-14 season — hasn't been established, and it is another point of contention. The league is pushing for a $60 million cap, while the union wants it to be $65 million.

In return for the higher cap number players would be willing to forgo a cap on escrow.

"We talk about lots of things and we even had some philosophical discussions about why particular issues were important to each of us," Bettman said. "That is part of the process."

The NHL proposed in its first offer Thursday that pension contributions come out of the players' share of revenues, and $50 million of the league's make-whole payment of $300 million will be allocated and set aside to fund potential underfunding liabilities of the plan at the end of the collective bargaining agreement.

Last month, the NHL agreed to raise its make-whole offer of deferred payments from $211 million to $300 million as part of a proposed package that required the union to agree on three nonnegotiable points. Instead, the union accepted the raise in funds, but then made counterproposals on the issues the league stated had no wiggle room.

"As you might expect, the differences between us relate to the core economic issues which don't involve the share," Fehr said of hockey-related revenue, which likely will be split 50-50.

The NHL is the only North American professional sports league to cancel a season because of a labor dispute, losing the 2004-05 campaign to a lockout. A 48-game season was played in 1995 after a lockout stretched into January.

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Lawsuit alleges horses mistreated on HBO’s ‘Luck’

LOS ANGELES (AP) — Several of the horses used on HBO‘s canceled series “Luck” were drugged, underweight and sick during production, an animal rights worker who oversaw conditions on the show alleges in a lawsuit.

Barbara Casey‘s suit filed Monday says she was wrongfully fired from her post at the American Humane Association after complaining about the conditions horses faced on the show, which was canceled after a series of high-profile animal deaths.

The suit claims four horses died during the show’s production, not three as previously reported. Horses were “often drugged to perform,” and “underweight and sick horses unsuited for work were routinely used” by producers, her lawsuit alleges.

Casey is suing HBO, which has repeatedly denied abusing horses on the show, and the humane association. The association declined to comment, citing the pending lawsuit.

“We took every precaution to ensure that our horses were treated humanely and with the utmost care, exceeding every safeguard of all protocols and guidelines required of the production,” HBO wrote in a statement.

Casey’s suit states she urged the humane association to report HBO and producers to authorities for possible animal-cruelty criminal charges.

The association “bowed to political and financial pressure and refused to report the production defendants’ conduct to the authorities,” the lawsuit states.

Casey served as director of the association’s Film and Television Unit, which oversees animal welfare and often allows a notice to be attached to the end of films and television shows that says no animals were harmed during production. The nonprofit association‘s film- and TV-monitoring efforts are paid for through entertainment industry grants, according to the lawsuit.

HBO canceled “Luck,” starring Dustin Hoffman, in March 2012 after three horse deaths were reported during production. Casey claims a fourth horse, named Hometrader, was killed in summer 2011 but its demise wasn’t documented because it occurred during a hiatus in filming.

The final horse that died during the series’ production had been examined by a California Horse Racing Board veterinarian shortly before it suffered a head injury while being led by a groomer to a stable.

By that point, the humane association and the People for the Ethical Treatment of Animals had both been critical of the show’s safety record and praised its cancellation.

Casey’s lawsuit seeks unspecified damages.

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Why U.S. lives under the shadow of 'W'

Julian Zelizer says former President George W. Bush's key tax and homeland security policies survive in the age of Obama

STORY HIGHLIGHTS

• Julian Zelizer: For all the criticism Bush got, two key policies have survived


• He says fiscal cliff pact perpetuates nearly all of Bush's tax cuts


• Obama administration has largely followed Bush's homeland security policy, he says


• Zelizer: By squeezing revenues, Bush tax cuts will put pressure on spending

Editor's note: Julian Zelizer is a professor of history and public affairs at Princeton University. He is the author of "Jimmy Carter" and of "Governing America."

Princeton, New Jersey (CNN) -- Somewhere in Texas, former President George W. Bush is smiling.

Although some Democrats are pleased that taxes will now go up on the wealthiest Americans, the recent deal to avert the fiscal cliff entrenches, rather than dismantles, one of Bush's signature legacies -- income tax cuts. Ninety-nine percent of American households were protected from tax increases, aside from the expiration of the reduced rate for the payroll tax.

Julian Zelizer

In the final deal, Congress and President Barack Obama agreed to preserve most of the Bush tax cuts, including exemptions on the estate tax.

When Bush started his term in 2001, many of his critics dismissed him as a lightweight, the son of a former president who won office as result of his family's political fortune and a controversial decision by the Supreme Court on the 2000 election.

But what has become clear in hindsight, regardless of what one thinks of Bush and his politics, is that his administration left behind a record that has had a huge impact on American politics, a record that will not easily be dismantled by future presidents.

The twin pillars of Bush's record were counterterrorism policies and tax cuts. During his first term, it became clear that Obama would not dismantle most of the homeland security apparatus put into place by his predecessor. Despite a campaign in 2008 that focused on flaws with the nation's response to 9/11, Obama has kept most of the counterterrorism program intact.

Opinion: The real issue is runaway spending

In some cases, the administration continues to aggressively use tactics his supporters once decried, such as relying on renditions to detain terrorist suspects who are overseas, as The Washington Post reported this week. In other areas, the administration has expanded the war on terrorism, including the broader use of drone strikes to kill terrorists.

Now come taxes and spending.

With regard to the Bush tax cuts, Obama had promised to overturn a policy that he saw as regressive. Although he always said that he would protect the middle class from tax increases, Obama criticized Bush for pushing through Congress policies that bled the federal government of needed revenue and benefited the wealthy.

In 2010, Obama agreed to temporarily extend all the tax cuts. Though many Democrats were furious, Obama concluded that he had little political chance to overturn them and he seemed to agree with Republicans that reversing them would hurt an economy limping along after a terrible recession.

Opinion: Time to toot horn for George H.W. Bush

With the fiscal cliff deal, Obama could certainly claim more victories than in 2010. Taxes for the wealthiest Americans will go up. Congress also agreed to extend unemployment compensation and continue higher payments to Medicare providers.

But beneath all the sound and fury is the fact that the 2001 and 2003 tax cuts, for most Americans, are now a permanent part of the legislative landscape. (In addition, middle class Americans will breathe a sigh of relief that Congress has permanently fixed the Alternative Minimum Tax, which would have hit many of them with a provision once designed to make sure that the wealthy paid their fair share.)

As Michigan Republican Rep. Dave Camp remarked, "After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent." Indeed, the Congressional Budget Office estimates that the new legislation will increase the deficit by $4 trillion over the next 10 years.

The tax cuts have significant consequences on all of American policy.

Opinion: Christie drops bomb on GOP leaders

Most important, the fact that a Democratic president has now legitimated the moves of a Republican administration gives a bipartisan imprimatur to the legitimacy of the current tax rates.

Although some Republicans signed on to raising taxes for the first time in two decades, the fact is that Democrats have agreed to tax rates which, compared to much of the 20th century, are extraordinarily low. Public perception of a new status quo makes it harder for presidents to ever raise taxes on most Americans to satisfy the revenue needs for the federal government.

At the same time, the continuation of reduced taxes keeps the federal government in a fiscal straitjacket. As a result, politicians are left to focus on finding the money to pay for existing programs or making cuts wherever possible.

New innovations in federal policy that require substantial revenue are just about impossible. To be sure, there have been significant exceptions, such as the Affordable Care Act. But overall, bold policy departures that require significant amounts of general revenue are harder to come by than in the 1930s or 1960s.

Republicans thus succeed with what some have called the "starve the beast" strategy of cutting government by taking away its resources. Since the long-term deficit only becomes worse, Republicans will continue to have ample opportunity to pressure Democrats into accepting spending cuts and keep them on the defense with regards to new government programs.

Politics: Are the days of Congress 'going big' over?

With his income tax cuts enshrined, Bush can rest comfortably that much of the policy world he designed will remain intact and continue to define American politics. Obama has struggled to work within the world that Bush created, and with this legislation, even with his victories, he has demonstrated that the possibilities for change have been much more limited than he imagined when he ran in 2008 or even in 2012.

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The opinions expressed in this commentary are solely those of Julian Zelizer.

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House chooses Boehner as speaker

The House has re-elected embattled Republican John Boehner speaker. The Ohio lawmaker won a second, two-year term as leader with 220 votes, losing just a handful of votes in the Republican-controlled chamber. (Jan. 3)

WASHINGTON (Reuters) - Despite a rocky few weeks during the "fiscal cliff" fight, John Boehner won re-election as speaker of the House of Representatives on Thursday and will again lead Republicans as they take on the White House over federal spending.

Boehner defeated House Democratic leader Nancy Pelosi 220-192 in a vote on the opening day of the 113th Congress and vowed to use his second term to shrink the national debt of $16 trillion to prevent it from "draining free enterprise."

The Ohio congressman narrowly avoided the embarrassment of having to go to a second-round of voting, as a small group of conservatives held back their support for him.

But without a challenger from inside his party, Boehner's re-election was never in doubt even though he has struggled to control an unruly group of fiscal conservatives in his caucus.

True to form, the often emotional Boehner shed a tear or two as took the gavel and spelled out the challenges ahead.

"Our government has built up too much debt. Our economy is not producing enough jobs. These are not separate problems," Boehner said.

"At $16 trillion and rising, our national debt is draining free enterprise and weakening the ship of state."

Questions were asked about Boehner's speakership when conservative Tea Party-backed lawmakers delivered him a stinging defeat in December by rejecting a proposal of his during talks with President Barack Obama to raise taxes on millionaires.

Boehner also came under fire for voting on Tuesday for a compromise deal to prevent the U.S. economy from falling off the so-called fiscal cliff and for being slow to approve aid for victims of Superstorm Sandy in the Northeast.

A TOUGH JOB

"Being speaker today is no bargain, I tell you," Republican Representative Peter King of New York told MSNBC's "Morning Joe."

Widely seen as having lost the "fiscal cliff" fight with Obama by accepting tax increases, congressional Republicans are keen for a rematch and they will get the chance soon.

Debate is likely to be fierce when lawmakers deal with planned spending cuts for military and domestic programs that are due to start in February. Around that time, Congress is likely to take up the thorny issue of extending the "debt ceiling" - the limit of how much the federal government can borrow.

Boehner was the Republicans' front man in fiscal talks with Obama but stepped aside for Senate Minority Leader Mitch McConnell who struck a dramatic New Year's Eve deal with Vice President Joe Biden.

The stress of recent weeks seems to have got to Boehner, who cursed at Senate Majority Leader Harry Reid at the White House twice after a meeting last week, according to Senate aides.

Reid had accused the Republican of running a "dictatorship" in the House and being more interested in keeping his speakership than in cutting a fiscal deal.

The son of a bar owner, Boehner had a tough upbringing. He shared one bathroom with his 11 siblings and worked in the family business while still a child.

He was elected speaker after the 2010 midterm elections when a Tea Party surge helped Republicans take the House from the Democrats.

Nancy Pelosi, his predecessor and now Democratic minority leader, presented the gavel again to Boehner on Thursday just after he won re-election.

"I know all too well that we will not always agree," Pelosi said. "But I hope, with all my heart that we find common ground that is a higher, better place for our country."

Fellow Republicans, not Democrats, have been landing some of the toughest blows on Boehner, notably New Jersey Governor Chris Christie who launched a tirade against the speaker for postponing an anticipated vote on a $60 billion storm aid package for the victims of Sandy.

King, who was among Boehner's critics, was more forgiving on Thursday after the speaker agreed to abruptly reverse course and set a timetable to approve the storm relief.

"John is really a voice of reason in our conference, despite some of the things I said yesterday," King told NBC's "Today."

(Additional reporting by David Lawder and Susan Heavey. Writing by Alistair Bell. Editing by Christopher Wilson)

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Eleven dead in Damascus gas station blast

AZAZ, Syria (Reuters) - At least 11 people were killed and 40 wounded when a car bomb exploded at a crowded petrol station in the Syrian capital Damascus on Thursday, opposition activists said.

The station was packed with people queuing for fuel that has become increasingly scarce during the country's 21-month-long insurgency aimed at overthrowing President Bashar al-Assad.

The semi-official al-Ikhbariya television station showed footage of 10 burnt bodies and Red Crescent workers searching for victims at the site.

The opposition Revolution Leadership Council in Damascus said the explosion was caused by a booby-trapped car.

There was no immediate indication of who was responsible for the bombing in the Barzeh al-Balad district, whose residents include members of the Sunni Muslim majority and other religious and ethnic minorities.

"The station is usually packed even when it has no fuel," said an opposition activist who did not want to be named. "There are lots of people who sleep there overnight, waiting for early morning fuel consignments."

It was the second time that a petrol station has been hit in Damascus this week. Dozens of people were incinerated in an air strike as they waited for fuel on Wednesday, according to opposition sources.

In northern Syria, rebels were battling to seize an air base in their campaign against the air power that Assad has used to bomb rebel-held towns.

More than 60,000 people have been killed in the uprising and civil war, the United Nations said this week, a much higher death toll than previously thought.

DRAMATIC ADVANCES

After dramatic advances over the second half of 2012, the rebels now hold wide swathes of territory in the north and east, but they cannot protect towns and villages from Assad's helicopters and jets.

Hundreds of rebel fighters were attempting to storm the Taftanaz air base, near the highway that links Syria's two main cities, Aleppo and Damascus.

A rebel fighter speaking from near the Taftanaz base overnight said much of the base was still in loyalist hands but insurgents had managed to destroy a helicopter and a fighter jet on the ground.

The northern rebel Idlib Coordination Committee said the rebels had detonated a car bomb inside the base.

The government's SANA news agency said the base had not fallen and that the military had "strongly confronted an attempt by the terrorists to attack the airport from several axes, inflicting heavy losses among them and destroying their weapons and munitions".

Rami Abdulrahman, head of the opposition-aligned Syrian Observatory for Human Rights which monitors the conflict from Britain, said as many as 800 fighters were involved in the assault, including Islamists from Jabhat al-Nusra, a powerful group that Washington considers terrorists.

Taftanaz is mainly a helicopter base, used for missions to resupply army positions cut off by the rebels, as well as for dropping crude "barrel bombs" on rebel-controlled areas.

Near Minakh, another northern air base that rebels have surrounded, government forces have retaliated by shelling and bombing nearby towns.

NIGHTLY BOMBARDMENTS

In the town of Azaz, where the bombardment has become a near nightly occurrence, shells hit a family house overnight. Zeinab Hammadi said her two wounded daughters, aged 10 and 12, had been rushed across the border to Turkey, one with her brain exposed.

"We were sleeping and it just landed on us in the blink of an eye," she said, weeping as she surveyed the damage.

Family members tried to salvage possessions from the wreckage, men lifting out furniture and children carrying out their belongings in tubs.

"He (Assad) wants revenge against the people," said Abu Hassan, 33, working at a garage near the destroyed house. "What is the fault of the children? Are they the ones fighting?"

Opposition activists said warplanes struck a residential building in another rebel-held northern town, Hayyan, killing at least eight civilians.

Video footage showed men carrying dismembered bodies of children and dozens of people searching for victims in the rubble. The provenance of the video could not be independently confirmed.

In addition to their tenuous grip on the north, the rebels also hold a crescent of suburbs on the edge of Damascus, which have come under bombardment by government forces that control the center of the capital.

On Wednesday, according to opposition activists, dozens of people died in an inferno caused by an air strike on a petrol station in a Damascus suburb where residents were lining up for fuel.

The civil war in Syria has become the longest and bloodiest of the conflicts that rose out of uprisings across the Arab world in the past two years.

Assad's family has ruled for 42 years since his father seized power in a coup. The war pits rebels, mainly from the Sunni Muslim majority, against a government supported by members of Assad's Shi'ite-derived Alawite minority sect and some members of other minorities who fear revenge if he falls.

The West, most Sunni-ruled Arab states and Turkey have called for Assad to step down. He is supported by Russia and Shi'ite Iran.

(Additional reporting by Khaled Yacoub Oweis in Amman and Dominic Evans in Beirut; Writing by Peter Graff; Editing by Ruth Pitchford and Giles Elgood)

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Wall Street starts new year with a bang after "cliff" deal

NEW YORK (Reuters) - Stocks kicked off the new year with their best day in over a year on Wednesday, sparked by relief over a last-minute deal in Washington to avert the "fiscal cliff" of tax hikes and spending cuts that threatened to derail the economy's growth.

In 2013's first trading session, the S&P 500 achieved its biggest one-day gain since December 20, 2011, pushing the benchmark index to its highest close since September 14.

Concerns over Washington's ability to sidestep the cliff had driven the S&P 500 down for five straight sessions, before signs that a resolution was near sent the benchmark index higher on the final trading session of 2012.

The CBOE Volatility Index or the VIX <.vix>, Wall Street's favorite gauge of investor anxiety, dropped 18.5 percent to 14.68 at the close. The VIX has fallen 35.4 percent over the past two sessions, the biggest 2-day percentage drop in the history of the index.

The Dow Jones industrial average <.dji> jumped 308.41 points, or 2.35 percent, to 13,412.55 at the close. The Standard & Poor's 500 Index <.spx> gained 36.23 points, or 2.54 percent, to finish at 1,462.42. The Nasdaq Composite Index <.ixic> climbed 92.75 points, or 3.07 percent, to end at 3,112.26.

U.S. markets were closed on Tuesday for New Year's Day.

Market breadth reflected the strong rally, with 10 stocks rising for every one that fell on the New York Stock Exchange. All 10 of the S&P 500 industry sector indexes gained at least 1 percent. The S&P financial index <.gspf> shot up 2.9 percent.

The S&P Information Technology index <.gspt> gained 3.2 percent, including Hewlett-Packard , which climbed 5.4 percent to $15.02. HP's gain followed a miserable 2012 when the stock fell nearly 45 percent as one of the S&P 500's worst performers for 2012.

On Tuesday, Congress passed a bill to prevent huge tax hikes and delay spending cuts that would have pushed the world's largest economy off a "fiscal cliff" and possibly into recession.

The vote avoided steep income-tax increases for a majority of Americans, but failed to resolve a major showdown over cutting the budget deficit, leaving investors and businesses with only limited clarity about the outlook for the economy. Spending cuts of $109 billion in military and domestic programs were temporarily delayed, and another fight over raising the U.S. debt limit also looms.

"We got through the fiscal cliff. The next big thing, and probably more contentious thing, is negotiating the debt ceiling and possibly entitlement reform in early 2013," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.

Hard choices about budget cuts and the critical need to raise the debt ceiling will confront Congress about the same time in two months "so the fur will be flying," Russell said.

U.S. stocks ended 2012 with the S&P 500 up 13.4 percent for the year, as investors largely shrugged off worries about the fiscal cliff. For the year, the Dow gained 7.3 percent and the Nasdaq jumped 15.9 percent.

Bank shares rose following news that U.S. regulators are close to securing another multibillion-dollar settlement with the largest banks to resolve allegations that they unlawfully cut corners when foreclosing on delinquent borrowers.

Bank of America Corp rose 3.7 percent to $12.03 and Citigroup Inc gained 4.3 percent to $41.25. The KBW bank index <.bkx> rose 3.2 percent.

Shares of Zipcar Inc surged 47.8 percent to $12.18 after Avis Budget Group Inc said it would buy Zipcar for about $500 million in cash to compete with larger rivals Hertz and Enterprise Holdings Inc. Avis advanced 4.8 percent to $20.77.

Shares of Apple rose 3.2 percent to $549.03, helping to lift the S&P information technology index <.gspt> up 3.2 percent following a report that the most valuable tech company has started testing a new iPhone and a new version of its iOS software.

Economic data from the Institute for Supply Management showed U.S. manufacturing ended 2012 on an upswing despite fears about the fiscal cliff, but the Commerce Department reported that construction spending fell in November for the first time in eight months.

Volume was heavy, with about 7.8 billion shares traded on the New York Stock Exchange, the NYSE MKT and the Nasdaq, well above the 2012 daily average of 6.42 billion.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Pa. governor sues NCAA over Penn State sanctions

STATE COLLEGE, Pa. (AP) — In a bold challenge to the NCAA's powers, Pennsylvania's governor claimed in a lawsuit Wednesday that college sports' governing body overstepped its authority and "piled on" when it penalized Penn State over the Jerry Sandusky child molestation scandal.

Gov. Tom Corbett asked that a federal judge throw out the sanctions, which include an unprecedented $60 million fine and a four-year ban on bowl games, arguing that the measures have harmed students, business owners and others who had nothing to do with Sandusky's crimes.

"A handful of top NCAA officials simply inserted themselves into an issue they had no authority to police under their own bylaws and one that was clearly being handled by the justice system," Corbett said at a news conference.

The case, filed under federal antitrust law, could define just how far the NCAA's authority extends. Up to now, the federal courts have allowed the organization broad powers to protect the integrity of college athletics.

In a statement, the NCAA said the lawsuit has no merit and called it an "affront" to Sandusky's victims.

Penn State said it had no role in the lawsuit. In fact, it agreed not to sue as part of the deal with the NCAA accepting the sanctions, which were imposed in July after an investigation found that football coach Joe Paterno and other top officials hushed up sexual-abuse allegations against Sandusky, a former member of Paterno's staff, for more than a decade for fear of bad publicity.

The penalties include a cut in the number of football scholarships the university can award and a rewriting of the record books to erase 14 years of victories under Paterno, who was fired when the scandal broke in 2011 and died of lung cancer a short time later.

The lawsuit represents a reversal by the governor. When Penn State's president consented to the sanctions last summer, Corbett, a member of the Board of Trustees, embraced them as part of the university's effort to repair the damage from the scandal.

Corbett said he waited until now to sue over the "harsh penalties" because he wanted to thoroughly research the legal issues and did not want to interfere with the football season.

The deal with the NCAA has been unpopular with many fans, students and alumni. Corbett, who is up for re-election next year, deflected a question about whether his response has helped or hurt him politically.

"We're not going to get into the politics of this," he said.

An alumni group, Penn Staters for Responsible Stewardship, applauded the lawsuit but said Corbett should have asked questions when the NCAA agreement was made.

"If he disapproved of the terms of the NCAA consent decree, or if he thought there was something illegal about them, why didn't he exercise his duty to act long before now?" the group said.

Paterno's family members said in a statement that they were encouraged by the lawsuit. Corbett "now realizes, as do many others, that there was an inexcusable rush to judgment," they said.

Corbett's lawsuit accuses the NCAA of cynically exploiting the Sandusky case, saying its real motives were to "gain leverage in the court of public opinion, boost the reputation and power of the NCAA's president" and "enhance the competitive position of certain NCAA members." It said the NCAA has not cited a rule that Penn State broke.

Corbett charged that the NCAA violated the Sherman Antitrust Act, which prohibits agreements that restrain interstate commerce. Legal experts called it an unusual case whose outcome is difficult to predict.

The NCAA has faced antitrust litigation before, with a mixed record of success. In 1984, the Supreme Court ruled against the NCAA's exclusive control over televised college football games. And in 1998, the Supreme Court let stand a ruling that said the NCAA's salary cap for some assistant coaches was unlawful price-fixing.

But federal courts have consistently rejected antitrust challenges to NCAA rules and enforcement actions designed to preserve competitive balance, academic integrity and amateurism in college athletics.

In this case, the courts might not be as sympathetic to the NCAA, said Matthew Mitten, director of the National Sports Law Institute at Marquette University Law School.

"It's difficult to justify the sanctions as necessary to protect the amateur nature of college sports, preserve competitive balance or maintain academic integrity," he said.

Joseph Bauer, an antitrust expert at the University of Notre Dame law school, said of Corbett's line of reasoning: "I don't think it's an easy claim for them to make, but it's certainly a viable claim."

Sandusky, 68, was convicted in June of sexually abusing 10 boys over a 15-year period, some of them on Penn State's campus. He is a serving a 30- to 60-year prison sentence.

Michael Boni, a lawyer for one of the victims, said he does not consider the lawsuit an affront. But he said he hopes Corbett takes a leading role in pushing for changes to state child-abuse laws.

"I really question who he's concerned about in this state," Boni said.

Michael Desmond, a businessman who appeared with Corbett at the news conference, said business at his five State College eating establishments was down about 10 percent during Penn State home game weekends this year.

"The governor's actions are going to be immensely popular with all Penn State alumni," Desmond said.

Corbett, a Republican, said his office did not coordinate its legal strategy with state Attorney General-elect Kathleen Kane, who is scheduled to be sworn in Jan. 15. Instead, the current attorney general, Linda Kelly, granted the governor authority to pursue the matter.

Kane, a Democrat, ran on a vow to investigate why it took prosecutors nearly three years to charge Sandusky. Corbett was attorney general when his office took over the case in 2009.

Kane had no comment on the lawsuit because she was not consulted about it by Corbett's office.

State and congressional lawmakers have objected to use of the NCAA fine to finance child-abuse prevention efforts in other states. Penn State has already made the first $12 million payment, and an NCAA task force is deciding how it should be spent.

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Associated Press writers Peter Jackson in Harrisburg, Pa., and Michael Rubinkam contributed.

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