European stocks drop at open; London loses

EUROPE'S main stock markets have fallen at Tuesday's open, with London's benchmark FTSE 100 index down 0.65 per cent at 6,423.57 points.

Frankfurt's DAX 30 sank 0.85 per cent to 8,294.87 points and the CAC 40 in Paris shed 0.43 per cent to 4,066.36 compared with Monday's closing values.

Asian equities mostly fell on Tuesday after another weak lead from Wall Street, as speculation mounts the US Federal Reserve will soon start to scale back its stimulus program, dealers said.

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No consular help for Freedom Flotilla

Foreign Minister Bob Carr says a group of Australians sailing for Indonesia are risking jail time. Source: AAP

FOREIGN Minister Bob Carr says a group of Australian activists planning to sail to Indonesia to highlight the fight for Papuan independence will receive no consular assistance whatsoever if they are jailed.

The stern warning came as representatives from the so-called Freedom Flotilla - three yachts with about 20 Australians and West Papuans aboard - continued to insist they would proceed with their protest.

They are expected to arrive in the city of Merauke in about a fortnight, without authorisation or proper documents.

But Senator Carr, who was in Jakarta on Tuesday for regional talks on people smuggling, said the group had received numerous warnings not to proceed with their plans.

Senator Carr said a formal letter had been sent to the organisation on Tuesday informing them that local laws and penalties would apply in Indonesia and Papua New Guinea.

The members of the group could face up to five years in prison for immigration and other offences if they entered Indonesian waters without approval.

"We've given them this warning. Therefore, should they end up in prison as a result of breaching the law of Indonesia or Papua New Guinea we've got no obligation to give them consular support," Senator Carr said.

"The penalties are clear. The penalties will apply and there is no intervention Australia can make and the provision of consular support where people have received explicit warnings is not an obligation."

Senator Carr said members of the flotilla were perpetrating a cruel hoax on the people of the Papuan provinces, by suggesting Papuan independence was on the international agenda.

"We recognise Indonesia's sovereignty over West Papua," he said.

"There's no way any Australian government, Labor or coalition, would give any support or encouragement to an enterprise of this type. We are opposed to it and we're advising against it."

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Labor, coalition battle over leave scheme

LABOR has seized on the coalition's inability to say how it will fund a $5.5 billion a year parental leave scheme as evidence spending cuts will be hidden until after the election.

Opposition Leader Tony Abbott and senior coalition frontbenchers could not specify how the scheme would be funded, or the role of the states, when quizzed about it on Tuesday.

The coalition, which opinion polls say will win government on September 7, offers women six months' leave on full pay, capped at $75,000, plus superannuation for each baby born from July 1, 2015.

Part of the funding will come from a 1.5 per cent levy on about 3000 companies, the scrapping of Labor's existing scheme and an end to "double dipping" by federal public sector workers.

Prime Minister Kevin Rudd said the coalition's budget management was a key question for voters.

"Every day this is like a train wreck unfolding," he said while campaigning in Brisbane.

"You've got huge challenges on the costings.

"Mr Abbott, because he believes he's already won this election, believes he can arrogantly not tell ordinary Australians where he's going to cut."

Mr Abbott said the scheme was "fully funded and fully costed" and rejected criticism it was a "Rolls Royce" scheme.

"This isn't a question of being generous - it's a question of being fair," he said.

However, he declined to say what proportion of the scheme would be funded by the company levy or commit to a cost-benefit analysis.

Shadow assistant treasurer and campaign spokesman Mathias Cormann said it had been costed at $6.1 billion over the forward estimates and at $5.5 billion a year "once it is in train".

Further funding details would be released "in the normal course of events".

"Contrary to what Labor is asserting, there will be no cuts, absolutely no cuts, in any other programs to fund our paid parental leave scheme," Senator Cormann said.

The states have been drawn into the debate because their public servants would have the option of shifting to the federal scheme, meaning there could be some shift of funds to the commonwealth.

West Australian Liberal premier Colin Barnett was adamant WA wouldn't contribute any money to the federal scheme.

However, the WA government on Tuesday said it understood a federal coalition government would fund the "gap" between its scheme and state schemes.

South Australian Labor premier Jay Weatherill said he was in the dark about the details, but Queensland and NSW have said they will back it.

Mr Abbott said he would have an "adult discussion" with the premiers after the election if he won.

Education Minister Bill Shorten said the release of the coalition's costings - expected in the final week of the campaign - would be a turning point for Labor's fortunes.

Meanwhile, a Liberal candidate whose personal website contained lewd and sexist content has resigned, after Mr Rudd challenged Mr Abbott to disendorse him.

Kevin Baker, contesting former Labor minister Greg Combet's NSW seat of Charlton, was forced to shut down his "Mini-Mods" forum site for car enthusiasts.

The site contained references to incest, domestic violence, racism and child abuse.

Finance Minister Penny Wong later said Mr Abbott's scheme was falling apart.

She said the Parliamentary Budget Office had found the net revenue impact of the 1.5 per cent levy would reap $4.7 billion over three years - $2 billion in 2015/16 when it is due to start.

"This is far less than the various figures used by the coalition over the last two days," she said in a statement.

The PBO costing indicated the levy would fund just 36 per cent of Mr Abbott's scheme, she said.

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Syria Kurds, jihadists in fresh battles

FRESH battles have broken out in strategic, majority Kurdish areas in Syria, as jihadists and the main Kurdish party fight each other for control.

In the northeastern province of Hasakeh, "clashes broke out at dawn pitting the Committees for the Protection of the Kurdish People (YPG) against the Islamic State of Iraq and the Levant (ISIS), Al-Nusra Front and other battalions," said the Syrian Observatory for Human Rights on Tuesday.

The fighting hit Dardara, Hmeid and Jafa villages, and others surrounding the strategic town of Ras al-Ain, near the Turkish border, the watchdog said.

The fighting comes days after jihadists linked to Al-Qaeda pressed a fresh offensive to take control of majority Kurdish areas.

Violence has been so fierce in recent days that some 30,000 Syrians, mostly Kurds, have fled to neighbouring Iraq, the UN said on Monday.

The massive exodus late last week appeared to be the biggest since around 9,000 Syrians crossed into Turkey in November.

"There is a war for territory, control and oil," said Havidar, a Kurdish activist from Ras al-Ain, who added that the town is important because it is a key gateway from Turkey into Syria.

Other flashpoints are home to oil and agricultural resources that both the YPG and the jihadists want to control, he told AFP.

The Kurdish Democratic Union Party, the largest in the area and the group that dominates the YPG, has announced plans for autonomy in Kurdish areas.

Elsewhere in Syria, canon fire by troops loyal to President Bashar al-Assad against the rebel-held Tariq al-Bab neighbourhood of the northern city of Aleppo killed four people, said the Observatory.

A projectile "launched by regime troops against a popular market in the Tariq al-Bab area killed four people, including a child, and wounded seven others," it said.

Syria's war, which the UN says has claimed more than 100,000 lives in 29 months, has morphed from a protest movement demanding Assad's fall into a complex civil war.

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Kogan 'muscled' out by telco heavies

Budget retailer Kogan Mobile says it has been "muscled out" of the industry by "telco heavyweights". Source: AAP

BUDGET mobile phone retailer Kogan Mobile says it has been "muscled out" of the industry by "telco heavyweights".

Telstra announced on Monday it will terminate Kogan customers' 3G network access some time in the next 30 days, essentially killing the company.

The move was prompted when ispONE, who supplied Kogan with 3G services purchased wholesale from Telstra, entered voluntary administration on Monday, severing their contracts.

Kogan and Telstra were not able to negotiate a direct supply agreement, unlike supermarket ALDI, who were likewise serviced by ispONE.

Kogan said it had made "numerous and concerted" efforts to convince Telstra to continue servicing its customers.

"We're devastated," the company wrote on its website.

It claimed to have been the victim of a power play by established telcos upset with Kogan stealing their customers.

"When over 100,000 people took their services to Kogan Mobile, in such a short space of time, it attracted a lot of attention.

"Frustratingly, it appears like the telco heavyweights may be determined to take their former customers back ... by force."

Telstra said existing Kogan customers would be moved to a temporary seven-day plan at some stage over the next month, after which their service will be cut off.

They will not be able to top up their credit but Kogan will offer pro-rata refunds to any customers with credit remaining when their service is terminated.

Customers will be able to transfer their phone number to another provider at any time over the next 180 days, Kogan said.

Optus has already pounced on the imminent exodus of customers, offering free additional data and call time to people who bring their number over.

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Legal blow for massive Browse gas hub

WA's premier says he will not give up on his plan for a massive gas hub in the Kimberley. Source: AAP

DEFIANT West Australian Premier Colin Barnett has attempted to shrug off the embarrassing legal defeat which places even more doubt around the proposed multi-billion dollar gas hub in the Kimberley.

Mr Barnett's dream of a massive onshore gas hub at James Price Point was dealt yet another blow on Monday, when WA's Chief Justice Wayne Martin ruled the environmental approval for the project was unlawful.

The proposed scheme was already in limbo, after energy giant Woodside announced earlier this year it would instead consider processing Browse Basin gas on a vessel stationed far offshore.

On Monday, Justice Martin gave the government another major headache, handing down damning verdicts on its environmental approval process.

Mr Barnett described the ruling as "regrettable" - and signalled the government would fight on.

"The decision relates to the process ... he did not in any way question the environmental conditions or approvals themselves," Mr Barnett said.

"All the environmental evidence and surveys and research has been done over many, many years. I am confident that still stands.

"It is now simply up to the state government to resubmit the environmental evidence and the recommendations on conditions attached to the use of James Price Point. That is, in all likelihood, what we will do."

The Wilderness Society, and Goolarabooloo elder Richard Hunter, had argued conflicts of interest in the Environmental Protection Authority (EPA) assessment process resulted in just one EPA board member - chairman Paul Vogel - making the final decision.

They also said the state's then-environment minister Bill Marmion had erred by granting his approval despite the conflicts. Chief Justice Martin agreed with both arguments.

"The minister's statement that the Browse LNG Precinct proposal could be implemented subject to conditions was not a valid exercise of the powers conferred upon the minister," the judgment said.

Peter Robertson of The Wilderness Society says the onshore project is now "dead and buried".

"Premier Colin Barnett must face facts, drop this unhealthy obsession," Mr Robertson said.

He also called on both Mr Vogel and Mr Marmion to resign, which Mr Barnett dismissed.

Mr Hunter said the ruling was also a vindication for the land's traditional owners.

"Our people are strong - we won't be bullied into a corner by the government," Mr Hunter said.

After Woodside dumped plans for a liquefied natural gas processing facility at James Price Point in April, the WA government went ahead with acquiring the land, saying it wanted to keep the area available for future projects.

Asked why the WA government would not simply abandon its bid, Mr Barnett said: "I don't give up".

It is open to the WA government to appeal against the ruling, but the Wilderness Society warned it would then cross-appeal.

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Rudd turns to health, spending cuts

Kevin Rudd and Tony Abbott are accusing each other of negative politics half way into the campaign. Source: AAP

PRIME Minister Kevin Rudd has warned the coalition would scrap GP super clinics and Medicare Local centres, as he fended off claims of running a negative scare campaign.

Heading into the third week of the campaign, Labor is stepping up efforts to persuade voters a coalition government would be a risk to jobs and services because it would have to cut public spending to fund its election promises.

Opposition Leader Tony Abbott, however, said Labor was plumbing new depths in its attacks on the coalition by making "a whole series of absolutely outlandish and false claims".

Mr Rudd took his campaign to northern NSW on Monday to launch a $50 million plan for stroke patient support.

Speaking at a Medicare Local centre, the prime minister said the coalition would shut down the facilities run by local clinicians and community leaders and sack 3000 frontline health workers.

"Mr Abbott hasn't really thought through the real impact of his cuts on real peoples' lives," Mr Rudd said.

Labor has backed up the attack with campaign advertisements showing workers standing in spotlights which are then switched off.

"This is not about negativity, it's about accountability," Mr Rudd said of the ads.

The coalition has yet to announce its health policy, but Mr Abbott said last Friday he wanted community control of public hospitals, and medical research funding would be quarantined.

Mr Abbott did not intend to cut health spending, but would be spending "money more wisely".

The opposition leader was in western Sydney on Monday to formally announce his small business and law and order policies.

"The current government in losing control of our borders, has not just failed to stop the boats but has failed to stop the guns as well," Mr Abbott said.

The crime policy includes a mandatory minimum sentence of five years for importing illegal firearms, $100 million for Customs and local gang squads and $50 million for CCTV cameras in communities.

During a visit to supporters in Liverpool, he incorrectly referred to Labor as the "former government", before quickly correcting himself.

Treasurer Chris Bowen stood by Mr Rudd's argument that the coalition cuts would drive the economy into recession.

"We've seen it in other countries when you cut and when you embark on an austerity program, then you see an impact on economic activity," Mr Bowen said.

The latest Newspoll puts the coalition ahead of Labor 54-46 on a two-party basis and Mr Abbott just two points behind Mr Rudd as preferred prime minister.

But, in a sign of hope for the government, an Essential poll has Labor and the coalition at 50-50, after a two-point drop in the primary vote for minor parties and independents.

Labor star candidate Peter Beattie, who is standing in the Queensland seat of Forde, took an optimistic view of the polls, saying Labor can stabilise and rebuild as the campaign to September 7 continues.

"Incumbent governments always go backwards in the first 10 or 11 days," the former premier said.

The opposition's health spokesman Peter Dutton dismissed as "totally false" Mr Rudd's suggestion that all Medicare Local programs would be scrapped and that 3000 frontline health staff would be sacked under an Abbott government.

The coalition continued to provide "in-principle" support for Medicare Locals and wanted to ensure that funding for patient services wasn't being diverted to administrative services, he said in a statement.

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Hong Kong stocks close 0.24% lower

HONG Kong shares ended 0.24 per cent lower on Monday following losses on Wall Street last week, while investors bet the US Federal Reserve will soon start winding down its stimulus program.

The benchmark Hang Seng Index fell 54.11 points to 22,463.70 on turnover of HK$44.31 billion (US$5.72 billion).

Market players have been intensely speculating about when the United States will begin tapering its massive $US85 billion a month bond-buying program, which has flooded markets with cash.

The Fed is due to release the minutes of its latest policy meeting on Wednesday and until then, analysts say, trade will likely remain cautious.

Steven Leung, head of institutional sales at UOB Kay Hian, told Dow Jones Newswires trade in Hong Kong would be "quite sluggish" until dealers are given clues about when a tapering might begin.

Property shares meanwhile slumped in Hong Kong after official data released Sunday showed Chinese home prices continued to rise at a steady clip.

Prices rose an average 6.7 per cent year-on-year in July, up from 6.1 per cent in June, according to calculations by The Wall Street Journal.

The data gave fresh fuel to worries that China will seek to slow the rise in prices with official curbs on the market.

Shares of residential-property builder Country Garden fell 2.6 per cent to HK$4.91 while Agile Property shares declined 2.8 per cent to HK$8.36.

Chinese shares closed up 0.83 per cent, reversing earlier losses and helped by selective buying of banking shares, dealers said.

The benchmark Shanghai Composite Index rose 17.15 points to 2,085.60 on turnover of 81.5 billion yuan ($US13.3 billion).

The market fell earlier in the day on Monday after a trading error by a securities firm last week triggered fears of tighter control over brokerages.

"Heavyweight banking stocks were higher on cheap valuations and that helped stabilise the market," Zheshang Securities analyst Zhang Yanbing told AFP.

China Minsheng Banking jumped 4.0 per cent to 9.38 yuan while Industrial Bank rose 3.43 per cent to 10.56 yuan.

internet security-related shares gained after China's stock regulator said it was investigating Everbright Securities for a trading glitch that briefly sent the Shanghai index up more than five per cent on Friday.

Software developer China National Software & Service surged by its 10 per cent daily limit to 27.20 yuan while Shanghai Baosight Software jumped 7.69 per cent to 29.12 yuan.

Brokerages ended lower, with Southwest Securities losing 3.84 per cent to 9.01 yuan and China Merchants Securities dropping 3.23 per cent to 11.07 yuan.

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Divers find three bodies in Indian sub

INDIA'S navy has retrieved four badly burned bodies from a submarine that exploded in a Mumbai dockyard and said it was unlikely any of the other 14 missing crewmen would be found alive.

The diesel-powered INS Sindhurakshak sank in a military dockyard early on Wednesday, dealing a setback to India's naval ambitions just days after it unveiled its first domestically made aircraft carrier.

Navy divers managed to enter the vessel, whose forward section was totally destroyed in the fire, but their progress was hampered by extreme heat, poor visibility and mangled hatches.

The first bodies were retrieved from a compartment behind the tower on Friday and have been sent for DNA testing because severe burns prevented their identification, a navy statement said on Friday.

The state of the bodies and conditions within the submarine "leads to the firm conclusion that finding any surviving personnel within the submarine is unlikely", the statement said.

It also suggested some bodies might never be found because of the fierce temperatures generated in the fire during which some of the weapons on board - cruise missiles and torpedoes - ignited.

"The navy will continue to search every inch of the submerged submarine till all bodies are either located or it can be stated with finality that no bodies remain to be found," it said.

The navy's focus remains on accessing all compartments of the vessel before attempting to salvage the vessel.

"Salvage of the submarine would only be attempted thereafter for which many alternatives including deploying professional salvors are also being considered," it added.

An inquiry has been set up to determine what caused the blasts, which turned the recently refurbished Russian-built submarine into a fireball.

The Times of India newspaper speculated on Friday that sabotage might have been the cause of the explosion, but the navy chief said on Wednesday that "the indicators at this point of time do not support that theory".

The families of the 18 men on board at the time of the explosion, whose names have been released, have gathered in Mumbai.

The 16-year-old submarine returned from Russia in April where it underwent a two-year overhaul of its communication, weapons and propulsion systems.

It is still covered by a Russian warranty and the Russian company responsible for the refit, Zvyozdochka, has offered its assistance.

Indian Prime Minister Manmohan Singh, addressing the nation in a traditional Independence Day speech on Thursday, voiced sorrow at the blast.

"The accident is all the more painful because the navy had recently achieved two major successes in the form of its first nuclear submarine, INS Arihant, and the aircraft carrier, INS Vikrant," Singh said.

In addition to the aircraft carrier launched on Monday, India announced sea trials for its first domestically made nuclear submarine last weekend, which Singh trumpeted as a "giant stride" for the country.

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Turkey, Egypt recall envoys over crackdown

TURKEY has recalled its ambassador to Cairo as tensions with Egypt worsen dramatically following a bloody crackdown on supporters of the country's ousted Islamist president.

Egypt retaliated by recalling its envoy to Turkey, whose Prime Minister Recep Tayyip Erdogan has condemned what he called the "massacre" of peaceful protesters.

Erdogan, a supporter of former president Mohamed Morsi and his Muslim Brotherhood movement, has infuriated the interim government in Cairo by terming his ouster a military "coup".

Nearly 600 people were killed in the violence that erupted on Wednesday when security forces moved in to break up pro-Morsi protest camps, the worst unrest in the country since the 2011 uprising that unseated Hosni Mubarak - causing international criticism to poured in.

Erdogan, who heads Turkey's ruling Islamic-rooted Justice and Development Party (AKP), had forged a close alliance with Morsi since he was elected in the country's first free election in June 2012.

The Islamist leader was invited to the AKP's annual congress last September where Erdogan positioned Turkey as a regional standard-bearer.

"We have shown everyone that an advanced democracy can exist in a predominantly Muslim country," Erdogan told the congress.

"We have become a role model for Muslim countries."

Turkish leaders hinted they would not break ties with the new leadership emerging in Egypt after the military uprising, despite their criticism of the army's actions.

Analysts, however, said the bloody crackdown on demonstrators was a breaking point for Turkey, which would make it very hard for Erdogan's government to reconcile with the military regime in Egypt.

Turkey invested both politically and financially in Egypt after Morsi's election, aiming to bolster Ankara's influence and show that Turkey was not the only country where Islam and democracy could coexist.

Erdogan said his country served as a "very important reference" to Egypt on why military uprisings must not be tolerated.

This week's unrest in Egypt is expected to hit around 260 Turkish businesses operating in the Arab world's most populous country.

Turkish investment in Egypt amounts to nearly $US2 billion ($A2.2 billion), mostly in the textile and clothing industries.

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