UPDATE 2-MTN denies illegal transfer of $14 billion from Nigeria
* Tensions in Abuja over reduced fine (Adds details, quotes, changes dateline)
* Mopping-up operations in central Mali town of Diabaly
* Algeria hostage-taking is apparent revenge for Mali campaign
* More West African troops arrive in Mali's capital Bamako
* Nigeria approves bigger military contingent
By Bate Felix and Tiemoko Diallo
BAMAKO/MARKALA, Mali, Jan 18 Islamist rebels in Mali abandoned the central town of Diabaly on Friday after fleeing a French air strike, military sources said, while West African troops arrived in Bamako to take on the insurgents in Mali's north.
France, warning that Islamist control over Mali's vast deserts and rugged mountains threatened the security of Africa and the West, had targeted Diabaly in an eighth day of air strikes to dislodge hardened al Qaeda-linked fighters there.
"They (the Islamists) fled the town, dressed as civilians, early this morning. They abandoned their weapons and ammunition," a Malian military source said.
The source said government soldiers had not yet entered the town but Diabaly Mayor Oumar Diakite told Reuters that troops were there carrying out mopping-up operations after a French air strike earlier in the day.
Diakite said residents had dug up some of the Islamist fighters' weapons caches. "There are lots of burned-out vehicles that the Islamists tried to hide in the orchards," he added.
A commander in the Malian army in nearby Markala said ground forces were operating around Diabaly, which lies about 360 km (220 miles) northeast of Bamako, but could not confirm that the town, seized by Islamists on Monday, had been recaptured.
French armed forces spokesman Thierry Burkhard said he was not aware of any operation in the area.
If officially confirmed, it would be a second military success for the French-led military alliance after Islamists on Thursday night abandoned Konna, to the north of the central garrison town of Sevare.
Medical charity Medecins Sans Frontieres has appealed for access to Konna but said it has so far been refused despite days of talks with all armed forces.
Bolstered with weapons seized from Libya after the 2011 fall of Muammar Gaddafi, the Islamist alliance of al Qaeda's North African wing AQIM and home-grown Malian groups Ansar Dine and MUJWA has put up staunch resistance.
The progress of French and Malian troops has been slowed also because insurgents had taken refuge in the homes of civilians, residents said.
The military operation is expected to force hundreds of thousands more people from their homes, on top of the 400,000 that have fled since a rebellion erupted last year.
French President Francois Hollande ordered the intervention on the grounds that the Islamists could turn northern Mali into a "terrorist state" radiating threats beyond its borders.
Residents in Markala, where the French have set up the forward base at an army camp overlooking the Niger River, said they were relieved to see French soldiers.
"The past few days have been very stressful before the arrival of the French troops," said Mohamud Sangare, who runs a hardware store in the centre of the town.
Despite threats from militants to attack French interests around the world, France, which now has 1,800 troops on the ground in Mali, has pledged to keep them there until stability returns to the poor, landlocked West African nation
In the first apparent retaliatory attack, al Qaeda-associated militants took dozens of foreigners hostage on Wednesday at a natural gas plant in Algeria, blaming Algerian cooperation with France.
Algerian security sources said that about 20 foreigners were still being held on Friday at the facility where some 30 hostages, along with at least 18 of their captors, were killed during a storming of the complex by Algerian armed forces on Thursday.
ECOWAS TROOPS POUR IN
A total of 2,500 French troops are expected in Mali but Paris is keen to swiftly hand the mission over to West Africa's ECOWAS bloc, which in December secured a U.N. mandate for a 3,300-strong mission to help Mali recapture its north.
The first contingents of Togolese and Nigerian troops arrived in Bamako on Thursday. Nigerien and Chadian forces were massing in Niger, Mali's neighbour to the east.
Nigerian President Goodluck Jonathan, in a letter to the Senate requesting approval to raise Nigerian's force to 1,200 soldiers, said Mali was a threat to the whole of the region.
"The crisis in Mali, if not brought under control, may spill over to Nigeria and other West African countries with negative consequences on our collective security, political stability and development efforts," he said. His request was approved.
The scrambling of the U.N.-mandated African mission, which previously had not been due to deploy until September, will hearten former colonial power France. With Chad promising 2,000 soldiers, African states have now pledged more than 5,000.
The head of Malian military operations, Colonel Didier Daco, said that Islamists were abandoning their 4x4 pick-up trucks, which made them vulnerable in the desert to French air strikes, to fight in the bush on foot.
Military experts say France and its African allies must now capitalise on a week of hard-hitting air strikes by seizing the initiative on the ground to prevent the insurgents from withdrawing into the remote desert and reorganising.
"The more painful the militants can make the push into northern Mali and subsequent pacification effort, the more they can hope to turn French, Western and African public opinion against the intervention in the country," global intelligence consultancy Stratfor wrote in a report on Friday.
MALIANS WELCOME FRENCH FORCES
With African states facing huge logistical and transport challenges, Germany promised two Transall military transport aircraft to help fly in their soldiers.
Britain has supplied two C-17 military transport planes to ferry in French armoured vehicles and medical supplies. Spain's government said it would provide a Hercules transport plane and dozens of instructors to help the Mali operation.
The United States is considering logistical and surveillance support but has ruled out dispatching U.S. troops.
Reuters journalists travelling north of Bamako saw residents welcoming French troops and, in places, French and Malian flags hung side by side. "Thank you France, thank you Francois Hollande," read one national newspaper headline on Friday.
"They will do it. We're confident that they will do it well," said Bamako resident Omar Kamasoko. "They came a bit late, it's true, but they came. We're grateful and we're behind him."
Mali's recent woes began with a coup in Bamako last March after two decades of stable democracy. In the ensuing chaos, Islamist forces seized large swathes of the north and imposed a severe rule reminiscent of Afghanistan under the Taliban.
The U.N. refugee agency said on Friday that refugees from northern Mali had given horrific accounts of amputations and executions, as well as the recruitment of child soldiers.
The agency said it expected 400,000 Malians to flee the fighting in coming months, placing great strain on the scant resources of the arid, impoverished Sahel region.
* Tensions in Abuja over reduced fine (Adds details, quotes, changes dateline)
By Gertrude Chavez-Dreyfuss NEW YORK, Sept 28 U.S. long-dated Treasury debt yields on Wednesday edged higher from three-week lows hit the previous session, as risk aversion eased with a recovery in Deutsche Bank's share price and more stable global stocks. Investors awaited Federal Reserve Chair Janet Yellen's testimony before a Congressional committee, which will be closely watched for any indication on the timing of the next interest rate hike. The Fed last week kept rates
* Fitch On U.S. retail Bankruptcies- Negative comps and fixed cost deleveraging lead to negative cash flow and unsustainable capital structures