A lawyer for Alexander, Robert G. Morvillo of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, said on Tuesday that he had not spoken with Alexander for at least two weeks. Morvillo said he believed at the time that Alexander and his family were on vacation in Israel--a trip they normally take in the summer.

Described by the FBI as 5 feet 8 inches tall with green eyes, Alexander has roots in Israel. He has dual United States and Israeli citizenship, and he helped found Comverse in Israel in the early 1980s before moving its headquarters to Long Island, NY. A significant amount of Comverse's research-and-development base remained in Israel, where it is viewed as a darling of the Israeli high-tech industry.

Furthermore, in the last two weeks of July, just before charges were filed, Alexander wired about $57 million from accounts in the United States to an account in Israel. Federal prosecutors have frozen the remaining amounts in the accounts here in the United States--estimated to be around $45 million. When asked if he was still representing Alexander, Morvillo said he had not been discharged by his client. "We're in a peculiar circumstance," Morvillo noted. "We have not been able to reach our client at the usual numbers we have for him."

If Alexander is indeed discovered by the authorities to be in Israel and is unwilling to return to the United States, the process to extradite him could be tricky, said Richard Bierschbach, an assistant professor at the Benjamin N. Cardozo School of Law in New York.

"While we have an extradition treaty with Israel, and chances are good crimes like this--major financial fraud--are covered by it, extradition is not only a legal process, but it's also a political process," Bierschbach said. "If he is a gigantic superstar over there, Israel could drag its feet on this."

Alexander, along with David Kreinberg, the former chief financial officer, and William F. Sorin, the former general counsel, are accused of manipulating stock options granted by the company's directors from 1998 to 2001. According to prosecutors, the three made a combined $8.4 million in profits by changing the grant date on the options to a time when Comverse's stock was trading at a lower price.

Options give an employee the right to buy a stock at some point in the future at the price of the stock on the day it was granted, commonly referred to as the strike price. The lower the strike price, the more an option is worth to the recipient.

The FBI has said it is investigating at least 45 cases involving the backdating of options. Options practices at more than 80 companies nationwide are under investigation by the Securities and Exchange Commission or by federal prosecutors in San Francisco, Brooklyn and Manhattan.

Resignation calls have come from parliament but also from the highest circles of the defence establishment.

Defence Minister Amir Peretz, also under fire for his performance since the start of the war on July 12, defended the army chief's "loyalty and dedication".

"His attention is entirely devoted to the war and the success of the army's missions," said Peretz in a statement.

"This regrettable affair would never have captured so much attention had the Lebanon campaign ended with clearcut victory" for Israel, said Mark Heller, an analyst with the Jaffee Centre for Strategic Studies.

"It is possible that the general made mistakes, but he certainly isn't the only one, whether at the political or military echelons," he told AFP.

Newspapers pilloried Halutz Wednesday, using the scandal to vent their anger at the man whose forces suffered unexpected setbacks at the hands of well-armed Hezbollah militiamen.

Maariv's editorial writer Ben Caspit was confident that the public's perception of a general who tries to save his stocks portfolio whilst sending his troops to the front lines would spell the end of his career.

"He entered this war as a prime minister designate. He is leaving it on a stretcher," he wrote.

The appointment last year of the former air force chief to the position of chief of staff had received a lukewarm reception within the ranks of the military, where some senior officers argued that a pilot was ill-suited for the top job.

Halutz was often criticised for being arrogant and over-estimating the air force.

The reproach returned to haunt him over the past month as it gradually emerged that Israel's fighters jets were failing to inflict enough damage on Hezbollah, which continued to rain rockets on northern Israel until the last day of the war.

When he was still air force chief, Halutz had ignited a controversy in 2002 when he said he had not lost any sleep over the death of 14 civilians in a strike of a top Palestinian militant in Gaza.

The sale of his shares caused a bigger stir.

The army chief sold shares worth 26,000 dollars on July 12 at noon, three hours after the Hezbollah border attack which left eight soldiers dead and two in the hands of the Lebanese militia.

A day later, the Tel Aviv Stock Exchange's TA-25 index had lost 8.3 percent.

Halutz did not deny he had sold his shares but charged he was the victim of a smear campaign.

"They've made me into a Shylock... I've gone into a tailspin, but I'll pull out," he was quoted as saying by Wednesday's newspapers.

Some critics, such as the Pension Rights Center, say the changes do nothing to stop companies from freezing their pensions and, with time, will weaken the pension system.

With its hundreds of pages, the bill seeks to strengthen traditional defined-benefit plans and requires companies to tell workers more about the health of their pension programs. It also nudges workers into putting more money away for their own retirement.

It aims to boost the 30,000 defined-benefit plans run by employers that are now underfunded by an estimated $450 billion. Those plans must reach 100 percent funding, up from the current 90 percent requirement, in seven years.

Seriously underfunded "at risk" companies must contribute at a faster rate and face certain restrictions, such as a ban on increasing benefits.

Lawmakers allowed workers to contribute more to their personal retirement savings accounts, such as IRAs and 401(k)s, in future years. Employers can encourage their workers to save by automatically enrolling them in 401(k) retirement accounts.

Financial firms will get greater leeway to offer advice to those 401(k) and IRA savers on how best to invest their retirement nest eggs.

Lawmakers singled out financially struggling airlines when drafting the new rules.

Airlines in bankruptcy proceedings that have frozen their pension plans, an act that stops participants from getting new benefits, get an extra 10 years to meet their funding obligations. That specifically helps Northwest Airlines and Delta Air Lines.

Other airlines could use those provisions if they freeze their pension plans. Two airlines with active defined-benefit plans, American Airlines and Continental Airlines Inc., nevertheless get 10 years after the new funding rules go into effect to meet their obligations, three years longer than other companies.

An additional change gives companies legal ground for hybrid plans known as cash balance plans, which have been challenged as discriminating against older workers. The AARP said the bill does not redress that potential discrimination.

To the benefit of all taxpayers, lawmakers hope the bill puts the Pension Benefit Guaranty Corp. on more stable financial footing. The federal agency, which insures pension plans, has deficits of $22.8 billion, stemming mainly from taking over defunct steel and airline plans.

The agency runs on company-paid premiums and interest earnings, but some worry that a rash of pension terminations could mean an expensive taxpayer bailout.

Lawmakers also wrote in special items for specific industries. Among them, defense contractors won a three-year grace period before being required to comply with the new pension funding rules. They argued that their government contracts don't provide enough flexibility to cover a sudden spike in pension costs.

Several unrelated items found their way into the bill, including a package of changes to the rules for charities and charitable donations.

It also paved the way for the $50 million Going-To-The-Sun road in Montana. The office of Sen. Max Baucus, D-Mont., said the project was approved in the 2005 highway spending bill but the money had been held up by a technicality.

Meanwhile, 33 percent of individual in families earning between $50,000 and $74,999 a year said they had trouble paying for medical bills while 21 percent of people in families earning $75,000 or more reported such a dilemma. Fifty percent of individuals in families earnings less than $35,000 annually reported such a problem.

Thirty-five percent of people in families with an annual income of between $50,000 to $74,999 reported they had trouble paying for health insurance while 23 percent of those in families earning $75,000 or more said the same. Forty-eight percent of those in families with incomes of less than $35,000 said they the premium cost represented a problem.

Karen Davis, president of the Commonwealth Fund, said she was surprised that people earning more than $50,000 were having difficulties affording health care, and that it signals that the high costs are affecting more people.

The study also found that 48 percent of those surveyed worried that wouldn't be able to pay their medical bills in the event of a serious illness, regardless of their income.

The study also found that while people are having difficulties paying for their health services, they are also unsatisfied with them. Forty-two percent of people surveyed said they had experienced poorly coordinated, inefficient or unsafe care at some points during the past two years. Their experiences included a medical error, a duplicate test or the failure to provide important test results to doctors or nurses.

Three-quarters of the adults surveyed said the health care system needs fundamental change or a complete rebuilding.

The Commonwealth Fund is a New York-based private foundation that aims to promote better health care. The study contacted 1,023 adults by phone in early June.

Some dealers had feared the partial closure of the biggest oilfield in the United States might trigger a surprisingly large drawdown in this week's crude inventories, but data on Wednesday showed a decline of 1.6 million barrels, in line with forecasts.

Crude stocks have fallen from the eight-year high reached earlier this year, but still remain higher than almost any time since 1999, giving refiners a sizeable supply buffer to guard against any unexpected disruptions.

Gasoline inventories dropped by a deeper-than-expected 2.3 million barrels, but demand eased from the previous week as the summer driving season, which ends in early September, began to wind down.

"It is this pace of demand deceleration, as well as the plentiful supplies of heating oil, that may set a more modest bearish tone to the market in the weeks after August," said First Energy Capital analyst Martin King.

"WTI crude oil prices treading water more in the range of the very low $70s to very high $60s may be something that materialises, barring any hurricane-induced price spikes."

Distillate stocks rose 800,000 barrels and heating oil supplies stand higher than a year ago, the data showed.

Supplies of natural gas, also used for winter heating, stand at historically high levels for the season and are expected to have risen over the past week, a Reuters poll showed. Gas storage data is due for release later on Thursday.

MIDDLE EAST FOCUS SHIFTS TO IRAN

In the Middle East, Lebanese troops rolled into the country's south on Thursday to join U.N. peacekeepers in taking control of Hizbollah strongholds as a ceasefire ending the month-long war extended into a fourth day.

But regional security concerns remain a factor for the market, as Iran -- OPEC's second-largest producer -- faces a self-imposed deadline of August 22 for responding to a package of incentives meant to end its uranium enrichment.

Foreign Minister Manouchehr Mottaki said on Wednesday that Tehran was ready to discuss the issue of suspending enrichment but would explain that it believes any halt to be "illogical".

The spectre of an Atlantic storm season -- which has yet to produce a hurricane -- also supported prices. Devastating Hurricane Katrina hit the U.S. Gulf Coast at the end of August last year, and some oil and gas fields have yet to recover.

The European Commission said that it was considering requiring all airlines flying to or from EU airports to collect detailed information on passengers and pass it to security services. A similar requirement by the US has resulted in long delays in the past week because each passenger has had to be checked and cleared before flights could depart.

The legal action being considered focuses on Section 93 of the Transport Act 2000, under which the Government can be liable to pay compensation for losses resulting from its emergency directions. Ryanair made the strongest threats against the Government yesterday but British Airways and easyJet also said that they were con-sidering legal action.

Jim Callaghan, Ryanair's head of regulatory affairs, sent an e-mail to a group of leading airlines yesterday outlining the case for compensation and encouraging them to take action.

The e-mail, a copy of which has been obtained by The Times, refers to Section 93 and says: "Ryanair intends to use this provision to put pressure on the Government to remove some of the illogical and unworkable restrictions at airports that are leading to large-scale disruptions and flight cancellations.

"We would invite other airlines to consider doing likewise."

A BA spokesman said: "Our lawyers are looking at this. It's certainly something worth exploring, although I don't think the provisions of the Act have been tested." BA has also said that it is considering seeking compensation from BAA, the airports operator, for failing to have adequate contingency plans at Heathrow and Gatwick.

An easyJet spokesman said: "We will consider whether either BAA or the Government has a case to answer. We have had to cancel 500 flights and put people up in hotels. Why should we have to pay for that?" Virgin Atlantic said that it would be urging the Government to pay for the additional security at airports. But a spokesman said: "We would prefer a cosy chat with the Government rather than suing them."

The British Air Transport Association, which represents 13 British airlines, urged the Department for Transport to return to the international standard size for hand luggage. Roger Wiltshire, the association's secretary-general, said: "The new smaller size has just been plucked out of the air to allow people to carry a laptop."

The T&G, the main union representing airport security staff, condemned the airlines for trying to pressurise the Government into relaxing security. Brendan Gold, the union's national secretary for aviation, said: "We are concerned that the industry is pushing for changes which serve its own business interests rather than the department's concern for the security of passengers."

Any compensation claims would be resisted on the grounds that security directions were issued under the Aviation Security Act 1982, not the Transport Act 2000, a government spokesman said.

The pilots' vote means that a walkout could take place at any time over the next 28 days, although Balpa, the pilots' union, said it would not take action over the August bank holiday. The airline flies out of a number of airports, including Heathrow, Aberdeen, Manchester, Norwich, Southampton, Stornoway, Cardiff, Birmingham, East Midlands, Teesside, Edinburgh and Belfast.

Further industrial action could follow if, as expected, pilots working for two other airline divisions - bmi mainline and bmi regional - also vote to walk out. The result of their ballot will be declared in a week's time.

Aslef said its members would walk out from midnight to midnight on Aug 25 and 29, with the union's second wave of strikes being planned for Sept 11, 22 and 25.

Aslef will soon announce the results of a ballot among drivers working for Heathrow Express who, it is believed, are also likely to back industrial action. The position of travellers in London is even worse, with the normally moderate white collar Transport and Salaried Staffs Association planning a 48-hour stoppage from noon on Sunday Aug 27 - during the bank holiday weekend - with further walkouts scheduled for Aug 31 and Sept 7.

Airports returned to some semblance of normality yesterday. British Airways cancelled 36 flights out of Heathrow, five fewer than Wednesday, and 11 out of Gatwick. BA expects to run a full long-haul schedule from Heathrow today. However there will be 19 short-haul flights cancelled, all to different destinations. Gatwick expects to run a full schedule. Tomorrow, the airline plans to run a full schedule, with minimal delays. The airline said it had been continuing to cancel flights until it was fully confident in its own and Heathrow's ability to operate a full schedule.

Gatwick airport and Sussex Police are reviewing security after a boy of 12 who had run away from a care home in Merseyside managed to board a Monarch Airlines plane bound for Lisbon on Monday. It is believed that the child ducked behind travellers as they went through initial document and passport checks.

He is understood to have passed through the x-ray machine and went through to the plane without being asked to show a boarding pass. It was only when he boarded without a stub that staff realised something was amiss.

Fisher is the first Fed policy-maker to speak publicly since the Federal Open Market Committee voted this month to hold U.S. benchmark interest rates steady at 5.25 percent. He is not an FOMC voting member in 2006.

The Fed's decision, taken with a single dissenting vote, paused a string of rate hikes made at 17 consecutive meetings over more than two years.

Financial markets are split on whether the Fed will resume its tightening cycle; futures show just a 25 percent chance of a September rate increase, but higher prospects for a Fed move in October or later.

Chances for Fed rate moves have slipped this week after July's core producer and consumer price data came in below Wall Street expectations, suggesting the Fed's forecasts for inflation to moderate may be playing out.

The U.S. economy typically slows before inflation comes down, Fisher noted. But assessments that the Fed is either done raising rates, or is already preparing to raise again, are mere guesses, he said.

SENSES WORKING OVERTIME

Fisher said the Fed "will watch and listen and 'taste' the indicators as they come in," stay dependent on both statistical and anecdotal data, and continue to monitor the lag between its policy actions and their effect on the economy.

"I expect the 17 consecutive (Fed) actions have begun to take their effect ... but I don't know any great precision how long it will take or how long of an impact there will be," Fisher told reporters.

At their core, central bankers worry most about inflation, "the enemy of sustainable growth," he said.

"If we see, after this pause, that inflation is beginning to threaten economic prosperity, we will take deliberate ... measures to counter it," he said. Even so, "that doesn't mean we need to take a sledgehammer to the economy."

Price inflation does not typically become entrenched unless accompanied by wage inflation, Fisher said.

"Conversations with CEOs and other business operators all indicate an emerging and widening shortage of skilled and semiskilled workers, along with attendant upward wage pressures."

Fisher later told reporters that a slower economy should start to tamp down wage pressures somewhat, but the economy has been running near full employment at a jobless rate that fell as low as 4.6 percent in June before rising to 4.8 percent in July.

More companies are reporting the ability to raise prices with less customer resistance, he said.

Energy prices are a factor. Some Dallas-area restaurants, for example, have seen energy prices spike by 40 percent this year, Fisher said.

"It becomes an inflation driver when you have pass-through" from headline prices to core prices, he said.

RECESSION NOT ON HORIZON

Fisher said U.S. gross domestic product growth for the second quarter was likely to be revised closer to 3 percent from its initial print of 2.5 percent, and third-quarter growth could be similar. "Recession is not visible on the horizon," he added.

Still, the U.S. housing market is in the midst of a correction notable for its "suddenness and depth," he said. That, along with high energy prices and higher interest rates, was "definitely having an impact on the consumer."

Fisher spoke at length about the impact of globalization in blurring the usual lag between Fed policy actions and their impact on the economy.

The lags "may become longer, increasing the time it takes for the consequences of Fed tightening measures to take hold," he said.

"Minister (Toshihiro) Nikai will certainly speak out about that at the lunch of the 16 ministers next week," Ramon Vicente Kabigting, a director at the Philippines' department of trade and industry told reporters Thursday.

Kabigting said that economic officials from each of the countries meeting here this week would have to brief their ministers who are holding their annual dialogue in the Malaysian capital next week.

"When the (ASEAN) ministers meet among themselves before they meet their dialogue partners, they will have some rough dimensions of their response," he said.

This is the first time Japan has raised the proposal to ASEAN and its dialogue partners China, Japan and South Korea -- known as ASEAN Plus 3 -- who gathered here Thursday.

An ASEAN official indicated there was a cautious response to the ambitious idea, saying it was met with silence in the closed-door meetings.

"We were looking at each other. Our silence does not mean we oppose it or we welcome it," he told AFP.

India, Japan and Australia are hoping that the East Asia Summit will be the first step towards a free-trade East Asia Community but even the concept's proponents say it is decades from reality.

Immediately after the meeting, Japanese officials began lobbying for ASEAN's support for their free-trade agreement idea.

"We are telling them we lack manpower resources. This is a problem faced by some ASEAN countries. We are already working on a number of FTAs. But we will have to brief our ministers," the ASEAN official told AFP.

Japan's first FTA, with Singapore, took effect in late 2002 and Japan has since agreed on deals with Mexico, Malaysia, Thailand and the Philippines.

It is involved in ongoing negotiations with Indonesia, South Korea and the 10-nation Association of Southeast Asian Nations as a whole.