Three decades of economic reform means CHINA CAN TURN ITS ATTENTION TO ADVANCED SCIENCE AND EXPENSIVE RESEARCH, considered a luxury in the days when the country worried about simply feeding and clothing 1.3 billion people. On Friday, Peking University opened the Kavli Institute for Astronomy and Astrophysics in a Chinese-style building overlooking the Yuan Ming Yuan summer palace. The ruins of that palace, which was burnt down to the ground by Western forces in the 19th century, have long symbolized China's weakness and humiliation.

But times have changed. While the Kavli Foundation, founded by Norwegian entrepreneur Fred Kavli to support research in basic sciences, contributed $3 million, the elite university kicked in at least $14 million for the building and plans to hire over a dozen professors.

China's spending on research and development hit a record high of 300 billion yuan ($43.73 billion) last year, Zhang said. About one third came from the government, and the remainder from corporations. R&D spending has risen to 1.49 percent of GDP, compared with over 2 percent of GDP for the United States.

THE DOWNSIZING OF THE U.S. AIRLINE INDUSTRY IS UNLIKELY TO BE REVERSED ANYTIME SOON, and whether it will spread beyond the United States is still uncertain. U.S. carriers are selling off hundreds of older, less-efficient planes, so the industry is unlikely to grow sharply again, even if oil prices - which climbed Friday briefly to another record above $142 a barrel - were to drop and the economy were to rebound.

Passengers flying within the United States need to begin preparing for some significant cuts to airline fleets and schedules that will begin taking effect within a few months. U.S. airports of every size - from LaGuardia in New York to Oakland in California - will also be affected as airlines reduce flights and eliminate services altogether.

AT LEAST ONE MAJOR CARRIER COULD LIQUIDATE, ATA HAS WARNED, on top of eight small airlines that have gone out of business or filed for bankruptcy protection this year. "IT'S A BAD SITUATION THAT'S GETTING WORSE," said David Castelveter, a spokesman for the trade group. As the cost of jet fuel rises, more price hikes are announced. "The question is how high they'll go," the expert says.

A HIGH OF $142.99 A BARREL FOR OIL SPARKED A TUMBLE IN ASIAN MARKETS AND SELLING IN EUROPE AND NEW YORK. The Dow Jones Industrial Average on Friday closed just shy of 20 per cent below its record high set in October and is on the cusp of entering an official bear market.

Fears of inflation and slower growth caused by higher energy costs are weighing on equities. Yet as stocks suffer, the surge in oil and other commodities during 2008 has the Reuters-Jefferies CRB spot index on track for its largest gain in 35 years. The index has risen 30.1 per cent since January, the largest increase since the 30.2 per cent gain in the first half of 1973. Evidence of renewed financial stress as banks prepare to close out the second quarter and report earnings next month is also fanning fears.

Worries about the health of the US economy, a vital market for many of Asia's export-led economies hammered regional equity markets on Friday.

The media watch group, which specializes in tracking Arabic language websites, said that postings on websites the past two years reflect A MOVE TOWARD WAGING AN ECONOMIC WAR AGAINST THE UNITED STATES. Mujahideen terrorist groups that operate in Afghanistan, Pakistan and other countries "have come to the conclusion that it is financial, rather than military, losses that will prompt the U.S. to change its policies in the Middle East and elsewhere," according to MEMRI.

Another recent posting stated, "The dollar can expect two additional blows that will break its back... namely the announcement of the return of the religious rule of the Caliphate..." AND THE REINSTATEMENT OF THE GOLD STANDARD IN INTERNATIONAL MONETARY TRADE. It urged Mujahideen "to get rid of American dollars" before an "imminent" terrorist attack that "will put an end to the so-called United States of America and DESTROY ITS ECONOMY COMPLETELY."

MEMRI concluded, "Given that it is highly atypical for Al-Qaeda to give prior warning of its attacks, the message is probably AN ATTEMPT TO PRESSURE MUSLIMS TO SELL DOLLARS, in order to generate pessimism in the dollar market and thus accelerate the drop in its value."

Barclays Capital has advised clients to batten down the hatches FOR A WORLDWIDE FINANCIAL STORM, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "THERE IS AN INFLATION SHOCK UNDERWAY. This is going to be very negative for financial assets. WE ARE GOING INTO TORTOISE MOOD AND ARE RETREATING INTO OUR SHELL. Investors will do well if they can preserve their wealth." The grim verdict on Ben Bernanke's Fed was underscored by the markets yesterday as the dollar fell against the euro following the bank's dovish policy statement on Wednesday.

Traders said the Fed seemed to be rowing back from rate rises. The effect was to propel oil to $138 a barrel, confirming its role as a sort of "anti-dollar" and as a market reproach to Washington's easy-money policies. The Fed's stimulus is being transmitted to the 45-odd countries linked to the dollar around world. THE RESULT IS SURGING COMMODITY PRICES. Global inflation has jumped from 3.2pc to 5pc over the last year.

The United States Federal Reserve Bank, or Fed, seems as much a part of America as Coca-Cola or Pizza Hut. But at least one difference has become apparent in recent days. While the pizza chain and soft-drink maker are likely to expand their scope of influence in the age of globalization, THE US CENTRAL BANK IS FINDING THAT ITS POWER IS SHRINKING.

Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members - but never the United States - have already endured this painful procedure. FOR SEVEN YEARS, US PRESIDENT GEORGE W. BUSH REFUSED TO ALLOW THE IMF TO CONDUCT ITS ASSESSMENT. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush's last year in office, but it may not be completed until he has left the White House. This is bad news for the Fed chairman.

When the final report on the risks of the US financial system is released in 2010 - and it is likely to cause a stir internationally - only one of the people in positions of responsibility today will still be in office: Ben Bernanke.

In a historic ruling, the US Supreme Court on Thursday declared 5 to 4 that the Second Amendment's GUARANTEE OF A RIGHT TO "KEEP AND BEAR ARMS" means that the government cannot enact an outright ban on certain commonly held weapons or otherwise prevent citizens from having a gun at home for personal protection or other lawful uses.

The landmark constitutional pronouncement came as the nation's highest court struck down a 32-year ban on private possession of handguns in Washington, D.C. The court also invalidated two other strict gun-control measures in the district that required that rifles and shotguns at all times be kept disassembled or secured with a trigger lock. The case is District of Columbia v. Heller.

"We hold that the District's ban on handgun possession in the home violates the Second Amendment, as does its prohibition against rendering any lawful firearm in the home operable for the purpose of immediate self-defense," Justice Antonin Scalia wrote in the majority opinion. The majority justices said the District's strict gun regulations violated "the right of law-abiding responsible citizens to use arms in defense of hearth and home."

Worries about inflation grew after crude oil futures jumped above $140 Thursday after OPEC's president said prices could go past $150 a barrel this year and Libya said it may cut oil production. "WE'VE STILL GOT BAD NEWS ON THE CREDIT CRUNCH, WE'VE GOT BAD NEWS ABOUT CONSUMERS," said Garry Evans, pan-Asian equity strategist with HSBC in Hong Kong. "The macro environment is not a good one and people are very risk averse."

World stocks fell to a three-month low as a fast deteriorating global inflation picture intensified concerns over the outlook for corporate profits, HASTENING THE RUSH OF INVESTORS' FUNDS INTO COMMODITIES. "It has a lot to do with asset allocations. The equity markets are under serious pressure, breaking support levels. When equities are going nowhere, the money is parked into commodities," said Olivier Jakob at Petromatrix.

The MSCI main world equity index fell more than 0.6 percent to its lowest since March, with the index on track for the worst monthly performance in percentage terms since September 2002, according to Reuters data. By contrast, commodities were strong, with gold near a one-month record high while U.S. corn futures jumped to a fresh record high.

GOLD RALLIED to its highest level in a month as oil's rise, A WEAK DOLLAR and TUMBLING WORLD STOCK MARKETS boosted the metal's safe haven appeal.

Parts of northeast Missouri and west-central Illinois got as much as an inch of rainfall overnight Wednesday after powerful downpours the night before. Weather systems rolling across Iowa were expected to produce more rain Thursday and Friday, the National Weather Service said. The rain was bringing new river crests and fresh anxiety. As calls for sandbagging slowed in one community, they popped up in another.

BERKELEY, CALIFORNIA - Hundreds of fire fighters worked Thursday to protect the scenic community of Big Sur from a lightning-sparked wildfire that inched closer to historic structures after burning 16 homes and threatening another 500 houses.

Californians were warned to protect themselves against choking smoke on Thursday as more than 1,000 wildfires blazed across the northern half of the state. Governor Arnold Schwarzenegger said residents in affected areas needed to keep windows and doors closed, urging people suffering from asthma and respiratory illness to take special care. "The whole state of California is filled with smoke, it's filled with smoke everywhere," Schwarzenegger told a press briefing in Butte County.

William Tanona, the Goldman analyst, added Citigroup to Goldman's "Americas conviction sell" list and cut his price target on the stock to $16 from $20. The analyst said Citigroup might take $8.9 billion of write-downs for the April-to-June period, leading to its third straight quarterly loss. He also said the bank might need to cut its quarterly dividend for a second time this year, after lowering it 41 percent to 32 cents per share in January.

On June 17, Goldman analysts led by Richard Ramsden said U.S. banks may need $65 billion more capital to cope with a global credit crisis that will not peak until 2009.

Giscard d'Estaing told the Irish Times that Ireland's referendum rejection would not kill the Treaty, despite a legal requirement of unanimity from all the EU's 27 member states. He said, "WE ARE EVOLVING TOWARDS MAJORITY VOTING because if we stay with unanimity, we will do nothing. It is impossible to function by unanimity with 27 members. This time it's Ireland; the next time it will be somebody else."

He also admitted that the Lisbon EU Treaty had been carefully crafted to confuse the public: "WHAT WAS DONE IN THE [LISBON] TREATY, AND DELIBERATELY, WAS TO MIX EVERYTHING UP. If you look for the passages on institutions, they're in different places, on different pages. Someone who wanted to understand how the thing worked could with the Constitutional Treaty, but not with this one."

In a letter to daily Kronen Zeitung he said: "WE THINK ANY FUTURE CHANGES TO THE TREATY THAT AFFECT AUSTRIAN INTERESTS MUST BE DECIDED IN AUSTRIA BY A REFERENDUM. A lot of people are under the impression that the EU is not concerned with their real problems but that it is interested above all in looking after itself? There is also in Austria widespread scepticism about the EU at the moment. After the vast majority of Austrians voted in favour of EU membership in 1994, today we see A MOOD OF UNCERTAINTY AND SOMETIMES ALSO REJECTION."

According to Hannes Swoboda, Vice-President of the Socialists in the EU Parliament, similar discussions are being had in Greece and the Netherlands and the Social Democrats' move would put other member states under pressure to make such a promise. Until now, among Austria's political parties, only the far-right FPOe and BZOe had called for a referendum.

In an interview with El Pais, Klaus said: "THE EU CANNOT IGNORE ITS OWN RULES. The Lisbon Treaty has been roundly and democratically rejected by Ireland, and it therefore cannot come into force. Any attempt to ignore this fact and make recourse to pressure and political manipulation to move the treaty forward would have disastrous consequences for Europe".

"Since the treaty must unanimously be ratified of all the member states of the EU and one of them has already rejected it, the final result of the ratification will be the same. With or without the Czech vote, the Treaty of Lisbon will not be ratified". However, separately Czech Prime Minister Mirek Topolanek said he was "optimistic" over the prospect of a Czech ratification of the Treaty, which is now pending a ruling in the country's Constitutional Court.

Meanwhile, an article in Le Figaro looks at Nicolas Sarkozy's ambitions "TO GIVE EUROPE REAL MILITARY CREDIBILITY." It notes that the Head of the European Defence Agency Alexander Weis is counting on Sarkozy to be able to convince the British that the agency's 20 million euro operating budget must be increased. It notes that the ideas for a 'military Erasmus' and European defence college, "designed to encourage the emergence of a common culture," will require unanimity. France also intends to develop the idea of being able TO DEPLOY 60,000 TROOPS WITHIN A YEAR OUTSIDE THE EU'S BORDERS.

The paper notes that the Franco-British plan to create a fleet of European helicopters is in principle agreed, and that the negotiations are ongoing for an aero-naval group allowing a British or French aircraft carrier to be permanently at sea. Paris is also proposing the creation of a tactical European transport fleet with the future Airbus A-400M as well as a satellite observation system, which has also been agreed. The article notes that Britain is still wary about the French plan to create an independent military planning headquarters in Brussels, with around 50 officers.