Danny Puff

WASHINGTON (Reuters) - Frustrated by their inability to wring more "fiscal cliff" concessions out of President Barack Obama , Republicans in the U.S. House of Representatives announced Tuesday night that they expect to pass their own tax bill as a backup plan to avert the tax hikes and automatic budget cuts set to occur in January.

No one expects the bill, which would extend low tax rates except on income of $1 million and above, to pass the Democratic-controlled Senate. President Barack Obama 's latest position puts the threshold for income tax hikes at $400,000.

While the move, called "Plan B" by Republicans , may not prompt Obama to give further ground in his negotiations with House Speaker John Boehner , it could allow Republicans to argue they did what they could to stop tax hikes and the full impact of the "fiscal cliff," which the Congressional Budget Office and economists have said could trigger another recession.

"Why not put on the floor something that's what most Americans think the president is talking about, which is protecting from tax increases everybody but truly millionaires and billionaires?," said Republican Representative Pat Tiberi of Ohio.

When it dies in the Senate, he said, "that's not our problem. We can't be held responsible for what the Senate does."

Polls have consistently suggested that the public is likely to blame Republicans for failure to reach a deal ahead of the December 31 deadline for action.

After important concessions in recent days from both Obama and Boehner , Republicans expressed frustration that the president had not moved further.

The White House seemed unconcerned by the Republican tactic, and stressed Obama's willingness to compromise further.

"The president has demonstrated an obvious willingness to compromise and move more than halfway toward the Republicans," White House spokesman Jay Carney told reporters, adding that Obama is making a "good faith" effort to reach a compromise.

Still, the mood on Capitol Hill was guardedly optimistic.

Global stocks advanced to their highest levels since September. Investors shifted funds to stocks and the euro and pulled away from safe-harbor assets such as bonds, gold and the U.S. dollar.

"They've still got a long way to go, but you can't help but say that the odds are better today than they were on Friday that we'll get some sort of agreement," said Oklahoma Republican Representative Tom Cole.

Hopes of an accord rose Monday night after Obama made a concession with his offer to limit tax increases to incomes exceeding $400,000 per household. That is a higher threshold than the $250,000 that the president had sought earlier.

Boehner, the top Republican in Congress, had earlier conceded on Obama's insistence that tax rates rise on the wealthiest Americans, but the two have been unable to agree on what income levels should be included in that category.

Analysts said Obama and Boehner may strike a compromise at $500,000 or close to that, though time was running short.

One House Republican aide, asked about prospects for "Plan B" on the House floor, said: "It wouldn't be surprising ... if a lot of conservatives balk at something like that." The House's second ranking Republican, Eric Cantor, said he was confident his party members in the House would back the bill.

'WE CAN DO BETTER'

Even as he presented the measure, Boehner said he would continue to negotiate with Obama on a broader agreement.

"Plan B is Plan B for a reason. It's a less-than-ideal outcome. I've always believed we can do better," Boehner said.

The expiration of low tax rates enacted under former President George W. Bush is a key component of the "fiscal cliff" that lawmakers are trying to prevent from taking hold next month, along with deep automatic government spending cuts.

Often challenged by the conservative wing of his caucus, Boehner held Republican lawmakers together in support of his efforts to forge a deal with Obama. The speaker emerged largely unscathed from a potentially tough meeting with his fellow House Republicans on Tuesday morning.

Representative Darrell Issa, a key committee chairman, said his fellow House Republicans "were supportive of the speaker. ... I saw no one there get up and say, 'I can't support the speaker.'"

With opinion polls showing broad support in the United States for raising taxes on the wealthiest Americans and Obama still buoyed by his re-election last month, the Republicans' traditional opposition to tax hikes has waned somewhat.

The Obama-Boehner talks have largely overcome stark ideological differences and are focused increasingly on narrower disagreements over numbers.

COST-OF-LIVING INCREASES

Obama also may face unrest from within his party. Liberal Democrats were likely to oppose a key compromise he has offered to permit shrinking cost-of-living increases for all but the most vulnerable beneficiaries of the Social Security retirement program. His proposal calls for using a different formula, known as "chained Consumer Price Index," to determine the regular cost-of-living increases, essentially reducing benefits.

"I am committed to standing against any benefit cuts to programs Americans rely on, and tying Social Security benefits to chained CPI is a benefit cut," Democratic Representative Keith Ellison said in a statement.

Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.

Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.

Missing from Obama's latest offer was any extension of the so-called "payroll tax holiday" that ends on January 1, bringing an immediate tax increase on wage earners.

Possible plans to produce cuts in spending for Medicare and Medicaid, the government health insurance programs for seniors and low-income Americans respectively, remained to be discussed.

Boehner and Obama have made headway on the politically explosive question of the president's ability to avoid constant battles over raising the nation's debt ceiling, which controls the level of borrowing by the government. Boehner is ready to give Obama a year of relative immunity from conservative strife over the debt ceiling, while Obama is pushing for two years.

(Additional reporting by Thomas Ferraro, Rachelle Younglai, David Lawder, Richard Cowan, Matt Spetalnick, Roberta Rampton, Jeff Mason and Fred Barbash; Writing by Kevin Drawbaugh; Editing by Alistair Bell, Will Dunham and Paul Simao)

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CHICAGO (Reuters) - One 13-year-old boy who sent a "Dear Santa" letter to the U.S. Post Office this year asked only for covers for his bed, "so I can stay warm this winter."

Another letter from a 12-year-old wanted nothing for himself, just something for his single mother, because she worked so hard.

Heartrending letters like these are sent each year to the Post Office "Letters to Santa" program, now in its 100th year.

Postal employees go through the hundreds of thousands of letters addressed to " Santa Claus , North Pole, Alaska " to separate out those that express serious need.

Some of the letters are answered by charitable groups, businesses, schools, postal employees and individual anonymous givers, who can come to participating branches, pick letters and go shopping.

The Chicago branch has already seen 18,000 letters come in -- with more arriving every day, said communications director and "Chief Elf" Robin Anderson on Tuesday. She expects about 2,500 will be answered. The New York "Operation Santa" program is the country's largest, receiving more than a half a million letters each season.

Letters this year are reflecting a greater need for necessities, and have included more letters from adults looking for work who need help buying for their children, according to both Chicago postal workers and givers.

"You're reading letters from six-year-old, eight-year-old kids who aren't asking for video games, they're asking for winter coats and food on the table, which is not something you'd think of kids writing to Santa for," said Kelley Fernandez , 26, who along with her colleague Debbie Schmidt , 53, who work for Toji Trading Group and have answered letters from Santa for three years.

Last year, Schmidt and Fernandez got other colleagues involved, and this year the whole Chicago office plus the Singapore office participated. The employees bought gifts for 26 families this year, including 106 children -- at 40 boxes the largest "Santa" shipment this year from the Chicago branch.

Anyone who wants to adopt a letter at a participating branch must fill out a form and show a picture ID. Then the giver comes back with a gift by December 22 to match the letter, and pays for postage.

To protect the privacy of the recipients, the full names and addresses are known only to the U.S. Post Office, which delivers the gifts.

One man who is an annual giver to the Santa program in Chicago used to be a recipient himself, said Anderson.

Schmidt and Fernandez say they bring a box of tissues to read the letters, because they can be so emotional. Fernandez recalled that last year, a little girl wrote, "Dear Santa, we're staying with our auntie because our mother can no longer take care of us, and we want you to know where we are this year."

Schmidt said she also sees requests from grandmothers, single moms and single dads.

Schmidt said she and her co-workers are sending handwritten letters back to the families along with the presents, signed by Santa. "We let everything be from Santa," she said. "The kids are so young, and still believing in Santa."

(Reporting By Mary Wisniewski; Editing by Greg McCune)

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I love all game consoles equally. My Xbox 360 is used equally as much as my PlayStation 3 . The Wii -- oh, I ll just leave it at that. The current generation of consoles is all but over -- their 10-year lifecycle be damned -- and new consoles are rumored to be coming next fall . If not next fall, then in 2014 . Whatever is the case, Sony ( SNE ) can t afford to lag in third place again. Sure, the Xbox 360 and PS3 are neck-in-neck in global lifetime sales , and the Xbox 360 did have a one year head start, but coming off the disappointing PS Vita, confidence is less high that Sony will deliver a console next year in time to compete with Microsoft ( MSFT ), according to Kotaku .

[More from BGR: Has the iPhone peaked? Apple s iPhone 4S seen outselling iPhone 5 ]

I want a new console just as much as any other gamer. There s a reason people are still pouncing on those Wii U consoles and flipping them on eBay . Six years is unusually long for a console to still be kicking around.

[More from BGR: Apple execs said to be seething over Google Maps praise ]

According to the well-informed Stephen Totilo, Editor-in-Chief of Kotaku , the game blog that first broke news on the next-gen Xbox , Microsoft s Durango is on the mark and "Sony appears to inspire less confidence due to the on-and-off troubles of the PlayStation 3 and the struggles of the Vita vs. how much lost confidence is due to any problems looming for PS4. "

Totilo says confidence is high that the next Xbox will be out in time for next Christmas and confidence is low that the PS4 will be right there on store shelves next to it.

The on-and-off troubles of the PlayStation 3 Totilo is referring to is the anchor that s weighed the console down since launch: tougher development due to the Cell processor and less available RAM -- 256MB vs. 512MB in the Xbox 360.

In the months before the PS3 s launch in 2006, Sony said the console would be the most powerful console ever created, and here we are six years later and multi-platform games on the console consistently end up being buggier and uglier than on the Xbox 360 in many cases. Cases in point: Skyrim, Mass Effect and Call of Duty: Black Ops II .

Sony s in a rut right now. It has the chops to build beautiful and powerful hardware that s a developer s dream (ex: PS Vita ), but at the same time, it s always launching after the competition nowadays.

If Sony s learned any lessons in the last half a decade, it better apply them to the PS4. The console needs to offer next-level processing and graphics. It needs to be backward-compatible with PS3 games and play Blu-ray discs. It should be small and quiet. It should have a strong online platform, support a greater array of apps and most importantly be easy for developers to program for.

Game exclusives will always be important, but now that games are million-dollar productions, multi-platform will be where developers hope to reap back their costs.

With Microsoft said to be preparing an Xbox 720 and an Xbox Lite , Sony can t make the mistake of launching late or pricing the console too high. A launch in spring of 2014 would mean Sony will miss Black Friday and Cyber Monday, the two biggest shopping days of the year that bring in massive sales . Ceding sales and market share to Microsoft and Nintendo by launching late would be disastrous.

The PS3 screwed up too many times. At this point, the PS4 needs to be perfect out of the door.

This article was originally published by BGR

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(Justin Sullivan/Getty Images)

NEW YORK Instagram sought to calm a growing furor among its more than 7 million users by saying it would clarify a new, controversial privacy policy. The policy would have given the popular Facebook-owned service the ability to profit from and control images posted through the popular photo-sharing app.

On Tuesday, the company announced it would reword language from the policy and terms of service that said: A business or other entity may pay us to display your username, likeness, photos and/or any other actions you take without any compensation to you. Announced Monday, the rule had been set to go into effect on Jan. 16 and was interpreted by many users to mean that Instagram would take user photos and sell them.

But Kevin Systrom, an Instagram co-founder, wrote in a post on the company's blog that it was never the company's intention to sell photos but rather to use a customer's information to allow businesses and other users to advertise to them as a way of gaining followers. He called the initial wording of the agreement "confusing" and "our mistake."

He added, "To be clear: It is not our intention to sell your photos. We are working on updated language in the terms to make sure this is clear. The language we proposed also raised question about whether your photos can be part of an advertisement. We do not have plans for anything like this, and because of that we re going to remove the language that raised the question."

It was not immediately clear, however, if Instagram's peace offering would be enough to appease thousands of users who were in open revolt over the app's proposed rule changes. Monday's announcement had sent many of the photo-sharing app s most prolific users into a frenzy, prompting dozens of celebrities and well-known photographers who have adopted Instagram as a journalistic tool to threaten to delete their accounts. (Full disclosure: I am an enthusiastic user of Instagram, having posted on it more than 1,000 photos of the 2012 presidential campaign.)

On Tuesday, Ben Lowy, a photojournalist who has used Instagram to document everything from Superstorm Sandy to the war in Libya for outlets including Time magazine, uploaded a photo of his son holding a handmade sign that said Goodbye and cross-posted it to his Tumblr account with a message.

This is my son Mateo. Photography is how I provide for him, clothe him, put him in school, Lowy, a photographer for Reportage by Getty Images, wrote. Photography is my passion, my calling, and my means of livelihood. Now Instagram and Facebook want to take my hard earned imagery and use it to generate income for themselves. What they have done is signal the end and failure of what could have been a revolutionary social media platform for visual communication.

Meanwhile, thousands of other Instagram users including celebrities took to Twitter to complain about the company s rule change, using hashtags like #boycottinstagram. Actress Tiffani Thiessen, famous for her role as Kelly Kapowski on the '90s sitcom Saved by the Bell, wrote that she was really sad to delete her Instagram account because of the company s ridiculous new terms. Her message was followed by one from actress Mia Farrow, who sought to project zen to her nearly 80,000 Twitter followers. Trust me, deleting your Instagram account is satisfying, she wrote.

Even the hacker group Anonymous weighed in on Instagram s decision suggesting through Twitter that users should delete their accounts .

On the Instagram app, hundreds of users protested the company s power grab by posting screenshots of the new user agreement and tagging them good-bye or boycottinstagram. But Instagram had apparently disabled the boycottinstagram tag.

The controversy came after what had been a banner year for Instagram, which saw its popularity explode as people began using their camera phones to document every aspect of their lives. Instagram s app had been praised for its simplicity; its software simply allows users to take a photo, apply a filter (or not) and share it on Facebook, Twitter and Tumblr with just a few taps of a button.

Instagram s soaring popularity quickly attracted a major suitor. In April, Facebook purchased the startup in a deal estimated to be worth as much as $1 billion. The deal was finalized in September and Instagram s new terms of service echo those implemented by Facebook, which has also angered users by taking ownership of photos posted to the site.

Officials at Instagram did not respond to a request for comment about its user complaints. But Systrom's message was clearly aimed at trying to curb bad publicity. He thanked Instagram users for airing their concerns.

"We need to be clear about changes we make this is our responsibility to you," he wrote. "One of the main reasons these documents don t take effect immediately, but instead 30 days from now, is that we wanted to make sure you had an opportunity to raise any concerns. You ve done that and are doing that, and that will help us provide the clarity you deserve."

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(Reuters) - Nielsen Holdings NV , the largest provider of television viewership ratings, will now dominate radio listening ratings as well.

Nielsen on Tuesday struck a deal to acquire its radio counterpart, Arbitron Inc , for $1.26 billion. The deal creates a powerhouse that places the measurement of audience for TV and radio under the control of one company.

The $48-per-share purchase price represents a 26 percent premium to Arbitron 's Monday closing price on the New York Stock Exchange. News of the deal sent Arbitron shares up 23.6 percent to $47.02 on Tuesday afternoon on the New York Stock Exchange. Nielsen shares were up 2.6 percent at $30.38.

Ratings - Nielsen's in TV and Arbitron's in radio - help determine how much advertisers are charged to run commercials during TV programs and radio listening hours. The higher the rating, the more people there are watching and listening. That translates into a higher price for a commercial spot.

"It's a huge deal for Nielsen," said Edward Atorino, an analyst with Benchmark Co. "It adds radio, which is a huge market."

The transaction has been approved by the boards of both companies but still needs regulatory approval. Nielsen and Arbitron did not cite a closing date but both companies expect the deal to go through.

Nielsen said it will pay Arbitron a 10 percent breakup fee if the acquisition is not approved by regulators.

Brian Wieser, an analyst with Pivotal Research Group, noted there is a risk that the merger will not be approved.

"The combination of Nielsen and Arbitron means that competition is increasingly unlikely to emerge, and thus radio station owners will require assurances that prices won't rise excessively and that measurement quality will not fall in any meaningful way," he wrote in a note about the deal.

BELIEVES IN RADIO

While it is best-known for TV ratings , Nielsen also provides a host of other data services including the measurement of traffic to websites, competing in that area with comScore Inc. It also provides information about what consumers buy at retail stores.

By acquiring Arbitron, Nielsen also gains access to what is known in industry parlance as "out-of-home," essentially billboards and other forms of outdoor advertising.

"We measure what (consumers) buy everywhere in the world and we measure what they watch," Nielsen Chief Executive David Calhoun told analysts on a conference call. "The real magic for us is the ability to link the two of those consumer behaviors."

Nielsen has come under fire in recent years for how its TV ratings are compiled, with many industry executives complaining that its measurements fail to reflect accurately viewership of on-demand television and engagement on social media.

The company, which was bought by a group of private equity players including Blackstone Group LP, Carlyle Group LP and KKR & Co LP, and which went public in 2011, has been working to improve its measurement services and expand into other areas.

For instance, Nielsen on Monday announced a partnership with Twitter to publish a new set of ratings that measure chatter on the social network about TV programming.

TOO PRICEY?

With Arbitron, Nielsen said it plans to expand its "Watch" measurement that keeps tabs on consumer viewing and listening habits across multiple screens such as TV, computers and mobile devices.

One analyst wondered if Nielsen was paying too much for a company that covers a medium that has been in decline for years.

"It seems like a pretty steep premium," said Evercore Research analyst Doug Arthur.

Radio's share of U.S. advertising spend is expected to decline to 9.3 percent this year from 9.6 percent in 2011, according to research firm eMarketer.

"Do we believe in the medium?" Calhoun asked rhetorically during the call, describing it as the crucial question behind the acquisition.

"The answer was unequivocal from all of our team who live in the digital world and live in all of these places. Yes."

Arbitron and Nielsen executives pointed to the fact that Arbitron also measures streaming music over the Web.

The acquisition will add about 13 cents per share to Nielsen's adjusted profit beginning in the first year after completion, the company said.

Arbitron reported revenue of $445 million for the 12 months ended September 30.

(Reporting by Sayantani Ghosh in Bangalore and Jennifer Saba in New York; editing by Peter Lauria, Roshni Menon, John Wallace and Matthew Lewis)

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SEATTLE (Reuters) - Microsoft Corp and Google Inc 's Motorola phone unit remain millions of dollars apart in their respective valuations of video and wi-fi patents at issue in a pivotal case before a federal judge in Seattle.

The outcome, expected sometime next year, could be a key development in the balance of power between Microsoft and Google - and the rest of the technology industry - in the running battle over ownership of the technology underlying increasingly popular smartphones, tablets and game consoles.

A trial, held November 13-20 in the Western District of Washington federal court , was designed to settle the matter of how much Microsoft must pay Motorola for use of two of its standard, essential patents used in its Xbox game console and other products.

In redacted post-trial filings made public on Monday - essentially its final arguments before the judge - Microsoft argued that it should pay no more than $502,000 per year for Motorola's H.264 video compression patent, and no more than $736,000 per year for Motorola's 802.11 wi-fi technology.

Motorola - acquired by Google earlier this year, partly for its valuable patent portfolio - submitted a far larger valuation.

In its filing, also made public in redacted form on Monday, Motorola said it was due payment of 2.25 percent of the selling price of Microsoft products such as the Xbox and Windows 7 operating system that use the patents in question.

Motorola argued that a fair cross-licensing deal would result in net payments to Motorola which it would be willing to cap somewhere between $100 million and $125 million per year, solely for the H.264 patent portfolio.

For the 802.11 patents, it claimed a net payment of 1.15 percent to 1.73 percent of Microsoft end-product prices, which would mean millions of dollars more per year.

U.S. District Judge James Robart is expected to rule on the case early next year.

The case in U.S. District Court, Western District of Washington , is Microsoft Corp. vs. Motorola Inc., 10-cv-1823.

(Reporting By Bill Rigby; Editing by Sanjeev Miglani)

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Guns for sale at a Walmart (Newsmakers)

The talk of new gun control measures that has followed Friday's mass shooting in a Newtown, Conn., elementary school has gun owners rushing to the nearest store and picking up new weapons, according to gun store owners and state police background check information.

On Saturday, Virginia state police fielded 4,166 requests for background checks, a 42 percent increase from the same Saturday last year and the highest number of transactions received in a single day since the program was implemented in 1989. Sunday's 1,828 background checks in Virginia represented a 43 percent increase from a year ago. Colorado also set a one-day record for background checks on Saturday with 4,200, the highest number since the program began in 1999.

Paul Decker, the owner of Hunters' Heaven in Hayes, Va., said he saw a big spike in sales over the weekend, with many customers buying the AR type of rifle allegedly used in the Newtown shooting. Gun control advocates want AR and other semi-automatic rifles banned, returning to the Bill Clinton-era policy that was the law of the land from 1994 to 2004. Also flying off the shelves were high-capacity magazines and ammunition, over fears Congress could vote to limit them.

"The people that would normally buy a box [of ammo] are buying four or five boxes," Decker said.

Virginia State Police spokeswoman Corinne Geller stressed that the background check figures are only a snapshot of the larger gun-sales picture, because only licensed gun dealers need to perform background checks. A person can buy guns through a classified ad or other private sellers, and there would be no record of it. Also, the state has no way of knowing how many weapons are sold per background check, so the figure does not describe the total number of guns sold last weekend in the state.

Richard Sprague, the owner of Sprague's Sports in Yuma, Ariz., said he saw a "noticeable increase in business" over the weekend. Sprague said the only other time he saw such a spike was immediately after President Barack Obama was elected president in 2008, when many gun owners feared he would push for restrictive gun laws.

Decker also said his business boomed in the year after Obama's election: He experienced a 50 percent increase in sales. "The '08 election was like the Brady Bill, the Crime Bill and Y2K all wrapped together and then doubled," he said, referencing two pieces of gun control legislation.

It's common for gun sales to spike after a mass shooting, because that is when politicians and others tend to push for gun control legislation. Democratic Sen. Diane Feinstein of California said Monday she will introduce a bill to ban dozens of assault weapon models and any magazines that hold more than 10 rounds of bullets.

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LOS ANGELES (Reuters) - A Florida man who pleaded guilty to hacking into the email accounts of celebrities to gain access to nude photos and private information was sentenced to 10 years in prison by a federal judge in Los Angeles on Monday.

Former office clerk Christopher Chaney , 36, said before the trial that he hacked into the accounts of film star Scarlett Johansson and other celebrities because he was addicted to spying on their personal lives.

Prosecutors said Chaney illegally gained access to email accounts of more than 50 people in the entertainment industry, including Johansson, actress Mila Kunis , and singers Christina Aguilera and Renee Olstead from November 2010 to October 2011.

Chaney, who was initially charged with 28 counts related to hacking, struck a plea deal with prosecutors in March to nine felony counts, including wiretapping and unauthorized access to protected computers.

"I don't know what else to say except I'm sorry," Chaney said during his sentencing. "This will never happen again."

Chaney was ordered to pay $66,179 in restitution to victims.

Prosecutors recommended a 71-month prison for Chaney, who faced a maximum sentence of 60 years.

TEARFUL JOHANSSON

Prosecutors said Chaney leaked some of the private photos to two celebrity gossip websites and a hacker.

Johansson said the photos, which show her topless, were taken for her then-husband, actor Ryan Reynolds.

In a video statement shown in U.S. District Court in Los Angeles, a tearful Johansson said she was "truly humiliated and embarrassed" when the photos appeared online, asking Judge S. James Otero to come down hard on Chaney.

Prosecutors said Chaney also stalked two unnamed Florida women online, one since 1999 when she was 13 years old.

Chaney, a native of Jacksonville, Florida , was arrested in October 2011 after an 11-month FBI investigation dubbed "Operation Hackerazzi" and he continued hacking after investigators initially seized his personal computers.

Shortly after his arrest, Chaney told a Florida television station that his hacking of celebrity email accounts started as curiosity and later he became "addicted."

"I was almost relieved months ago when they came in and took my computer ... because I didn't know how to stop," he said.

(Reporting by Eric Kelsey; Editing by Jill Serjeant and Andrew Hay)

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BEIRUT (Reuters) - Russia sent warships to the Mediterranean to prepare a potential evacuation of its citizens from Syria , a Russian news agency said on Tuesday, a sign President Bashar al-Assad 's key ally is worried about rebel advances that now threaten even the capital.

Moscow acted a day after insurgents waging a 21-month-old uprising obtained a possible springboard for a thrust into Damascus by seizing the Yarmouk Palestinian camp just 2 miles from the heart of the city, activists said.

The anti-Assad opposition has posted significant military and diplomatic gains in recent weeks, capturing a series of army installations across Syria and securing formal recognition from Western and Arab states for its new coalition.

Assad's pivotal allies have largely stood behind him. But Russia, his main arms supplier, appeared to waver this week with contradictory statements repeating opposition to Assad stepping down and airing concerns about a possible rebel victory.

Russia's Interfax news agency quoted unnamed naval sources on Tuesday as saying that two assault ships, a tanker and an escort vessel had left a Baltic port for the Mediterranean Sea, where Russia has a port in Syria's coastal city of Tartus.

"They are heading to the Syrian coast to assist in a possible evacuation of Russian citizens ... Preparations for the deployment were carried out in a hurry and were heavily classified," the Russian agency quoted the source as saying.

It was not possible to independently verify the report, which came a day after Russia confirmed that two citizens working in Syria were kidnapped along with an Italian citizen.

YARMOUK A "RED LINE"

In Damascus, activists reported overnight explosions and early morning sniper fire around the Palestinian refugee camp of Yarmouk. The Yarmouk and Palestine refugee "camps" are actually densely populated urban districts home to thousands of impoverished Palestinian refugees and Syrians.

"The rebels control the camp but army forces are gathering in the Palestine camp and snipers can fire in on the southern parts of Yarmouk," rebel spokesman Abu Nidal said by Skype.

"Strategically, this site is very important because it is one of the best doors into central Damascus. The regime normally does not fight to regain areas captured any more because its forces have been drained. But I think they could see Yarmouk as a red line and fight back fiercely."

Syria hosts half a million Palestinian refugees , most living in Yarmouk, descendants of those admitted after the creation of Israel in 1948, and has always cast itself as a champion of the Palestinian struggle, sponsoring several guerrilla factions.

The battle in Yarmouk was one of a series of conflicts on the southern edges of Damascus, as rebels try to choke off the capital to end 42 years of rule by the Assad family, who belong to the minority Alawite sect, derived from Shi'ite Islam.

Both Assad's government and the mainly Sunni Muslim rebels have enlisted and armed divided Palestinian factions as the uprising mushroomed from street protests into a civil war.

Streams of refugees have fled Yarmouk, the Syrian Observatory for Human Rights said on Tuesday. Many have headed to central Damascus while hundreds more have gone across the frontier into Lebanon.

MEDICAL SHORTAGES, EXTREME HUNGER

More than 40,000 people have died in Syria's conflict, activists say. Around 200 died on Monday alone, according to the British-based Observatory, which has a network of activists across Syria. Violence has risen sharply, and with it humanitarian conditions are deteriorating.

The World Health Organisation said around 100 people were being admitted daily to the main hospital of Damascus and that supplies of medicines and anesthetics were scarce.

It also reported a rise in cases of extreme hunger and malnutrition coming from across Syria, including the rebel-dominated rural areas outside the capital, where the army has launched punishing air raids.

Aid organizations say fighting has blocked their access into many conflict zones, and residents in rebel-held areas in particular have grappled with severe food and medical shortages.

Fighting raged across Syria on Tuesday, with fighter jets and ground rockets bombarding rebel-dominated eastern suburbs of the capital and army forces shelling a town in Hama province after clashes reignited there over the weekend.

Rebels overran at least five army sites in a new offensive in Hama on Monday, opposition activists said.

Qassem Saadeddine, a member of the newly established rebel military command, said on Sunday fighters had been ordered to surround and attack army positions across Hama province. He said Assad's forces were given 48 hours to surrender or be killed.

In 1982 Hafez al-Assad, late father of the current ruler, crushed an uprising in Hama city, killing up to 30,000 civilians.

Qatiba al-Naasan, a rebel from Hama, said the offensive would probably bring retaliatory air strikes from the government but said that rebels were keen to put more strain on the army as living conditions deteriorated in the province.

"For sure there will be slaughter - if the army wants to shell us, many people will die," he said by Skype. "But at the same time our situation is already getting miserable. "

Syrian Vice President Farouq al-Sharaa said in a newspaper interview published on Monday that neither Assad's forces nor rebels seeking to overthrow him can win the war.

Sharaa, a Sunni Muslim in a power elite dominated by Assad's Alawites, is not part of the president's inner circle directing the fight against Sunni rebels but is the most prominent figure to say in public that Assad would not prevail.

(Additional reporting by Oliver Holmes, Erika Solomon and Dominic Evans in Beirut, Stephanie Nebehay in Geneva, Afif Diab in Masnaa, Lebanon; Editing by Mark Heinrich)

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WASHINGTON (Reuters) - Intel Corp. won an appeal in a patent fight with Negotiated Data Solutions LLC (N-Data) over Ethernet patents that make it possible for computers to easily talk to one another.

The U.S. Court of Appeals for the Federal Circuit ruled on Monday that Intel did not infringe the patents because it had licensed them from National Semiconductor Corp in 1976. National had assigned the patents to Vertical Networks Inc in 1998, which assigned them to N-Data.

Based on the licensing agreement, Intel won the case in a Texas court on summary judgment. The appeals court agreed.

N-Data had also sued Dell Inc, which settled in 2009.

The case at the U.S. Court of Appeals for the Federal Circuit is Intel Corp. v Negotiated Data Solutions, Inc. , No. 2011-1448.

(Reporting By Diane Bartz; Editing by Gerald E. McCormick )

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