HONG KONG, Nov 17 (Reuters) - Hong Kong shares fell for a third-straight session on Thursday, with mainland property names among the hardest hit in weak turnover as investors stayed away on growing fears of global contagion from Europe's debt crisis.

  The Hang Seng Index closed down 0.76 percent at 18,817.47. The China Enterprises Index of top mainland companies listed in Hong Kong finished down 1 percent at 10,228.65.

  The Shanghai Composite Index closed at the lowest in about three weeks, down 0.16 percent at 2,463.05 after see-sawing between gain and loss for most of the day as A-share turnover slumped.

 

  HIGHLIGHTS:

  * The Hang Seng Index finished off the day's low, testing the 38.2 percent Fibonacci retracement of its rise from the low on Oct. 4 to the Oct. 28 high at about 18,715, which was also the low on Oct. 26. The benchmark is now on track for its third-straight weekly loss.

  * Mainland property developers were among the biggest losers, with China Resources Land Ltd, down 4.1 percent and among the top percentage losers among Hang Seng Index components. The sector has seen short-selling interest remain at elevated levels despite falling in the broader Hong Kong market in the last two months, suggesting investors remain bearish despite no longer expecting a hard landing in the Chinese economy. Reports that housing prices were falling in the mainland this week have driven the fresh downward spiral this week that has been accompanied by relatively thin volume.

  * Embattled Esprit Holdings Ltd dropped 6.1 percent in almost twice its 30-day average volume, following 4.3 percent loss the session before after the Europe-focused retailer was removed as a component stock from the MSCI Hong Kong benchmark from Nov. 30. The company has lost 76 percent of its market capitalisation in the year to date after posting a near 100 percent slump in full-year net profit in September. (Reporting by Clement Tan Editing by Chris Lewis)

  * Fed's Waller says not much Fed can do to speed recovery

  * Waller says not clear MBS buys would help much

  * Waller is top policy adviser to Fed bellwether Bullard

  By Mark Felsenthal

  St. LOUIS, Nov 17 (Reuters) - The U.S. economic recovery will likely be a long slog over several years and there is not a whole lot the Federal Reserve can do to speed the process, according to a top economist at the central bank.

  " Something's happened in U.S. labor markets that we can't overcome," St. Louis Federal Reserve Bank Research Director Christopher Waller told Reuters in an interview. " No matter what we do, recovery is going to be slow."

  Under President James Bullard, the St. Louis Fed has staked out the middle ground between officials who advocate all-out efforts to boost growth and those urging restraint out of fears easy money policies are setting the stage for inflation.

  Bullard, who said on Tuesday that the Fed should refrain from a further easing of monetary policy unless the U.S. economy falters from its current modest growth pace, has become something of a bellwether for Fed policy.

  The remarks from Waller late Tuesday, Bullard's top policy adviser, illustrate a sense among some officials that the central bank has done what it can to lift the world's largest economy and that there may be no shortcuts on the road to health after an unusually deep and wrenching recession.

  " There's no point in trying to say, 'Cure cancer with monetary policy'," he said. " It's just not possible."

  MODEST JOB GAINS

  The Fed cut overnight interest rates to near zero almost three years ago and bought $2.3 trillion in bonds in a further effort to try to boost growth.

  More recently, it moved to lower long-term borrowing costs by shifting its bond holdings into longer maturities. In addition, it promised to hold rates at exceptionally low levels well into 2013 to assure markets that it will be in no hurry to raise rates when the economic skies start to clear.

  Even with the Fed's ultra-easy money stance and an economy poised to grow respectably over the next few months, the unemployment rate, which stood at 9 percent in October, will likely come down only gradually, Waller said.

  He expects declines of roughly a half-percentage point a year, in line with the same slow pace that followed the previous two recessions.

  " The pattern seems to be reemerging. (Unemployment) stays high and it just trickles down," Waller said.

  Fed economists are trying to understand why the U.S. job market no longer seem to manage the bold post-downturn advances of the past. Possible explanations include employer reluctance to rehire workers once they've been let go, as well as the deep cuts to construction jobs related to the crash of housing markets specific to the most recent recession, Waller said.

  Fed Chairman Ben Bernanke has called the lofty level of unemployment a national crisis, and financial markets have begun to expect the U.S. central bank to launch a further round of asset purchases to push the sluggish recovery into higher gear next year.

  But those expectations may be skewed by recent remarks from central bank officials representing an activist faction, such as Chicago Fed President Charles Evans and Fed Board Governor Daniel Tarullo, Waller said.

  HOUSING MAY LAG

  One growth-enhancing step policymakers have discussed is expanding purchases of mortgage-backed securities to help heal housing markets. MBS buying helped stop the decline in house prices in 2009, Waller said, but there are questions about whether the move would be as effective now as it was then.

  " Now, we don't see the economy going off a cliff, we don't see the stock market crashing, we don't see jobs disappearing by 700,000 a month, so the circumstances are different," he said. With mortgage interest rates at rock-bottom levels, Waller said it is possible that pretty much anyone able and interested in buying a house has already bought one, so the only benefit would be in encouraging refinancing.

  And although many view housing as an essential component of a more robust rebound, it may be unreasonable to expect that sector to rapidly regain any of its pre-crisis sparkle, he added. Housing oversupply and the slow pace of resolving problems from decimated home values will make the pace of recovery in this sector painfully slow, he said.

  " It's going to take a while to get this turned over," Waller said. " We just have to accept that housing is moribund and we can't expect it to get us out of this."

By Fredrik Dahl and Sylvia Westall

  VIENNA (Reuters) - The United Nations nuclear watchdog wants to send a high-level mission to Iran to address mounting concerns the country may be seeking to design atomic bombs, its head said on Thursday.

  An International Atomic Energy Agency report last week assessing that Iran has been conducting research and experiments geared to developing a nuclear weapons capability has stoked tensions in the Middle East and heightened Western pressure for harsher punitive sanctions against the Islamic Republic.

  IAEA chief Yukiya Amano announced his proposal at a meeting of the Vienna-based agency's 35-nation governing board, where six major powers were expected to close ranks to increase diplomatic pressure on Tehran.

  Amano said he had written to the head of Iran's Atomic Energy Organisation, Fereydoun Abbasi-Davani, earlier this month to suggest the visit, which would air issues raised by the hard-hitting IAEA report on Iran.

  " Preventing the proliferation of nuclear weapons is one of the IAEA's core responsibilities," the veteran Japanese diplomat told the closed-door meeting, according to a copy of his speech.

  " Throughout the past three years, we have obtained additional information which gives us a fuller picture of Iran's nuclear programme and increases our concerns about possible military dimensions," Amano said.

  " The information indicates that Iran has carried out activities relevant to the development of a nuclear explosive device," he said, in his toughest public statement so far on Iran's disputed nuclear programme.

  Iran denies that it is seeking atomic weapons, dismissing intelligence information in the IAEA report as fabricated, and accusing the U.N. watchdog of pro-Western bias.

  Amano said he hoped a " suitable date" could be agreed soon for his team's visit to Iran, which permits IAEA inspections of declared nuclear sites but since 2008 has stonewalled an agency investigation into " alleged studies" applicable to atomic bombs.

  WEST SEEKS MORE IRAN PRESSURE

  " It is essential that any such mission should be well planned and that it should address the issues contained in my report," Amano said.

  " I ask Iran to engage substantively with the agency without delay and provide the requested clarifications regarding possible military dimensions to its nuclear programme."

  Vienna-based Western diplomats said six world powers were close to finalising an agreement on a draft resolution at the two-day IAEA meeting expressing concern about Iran's activities and calling on it to cooperate fully with the IAEA.

  The fact that the six major powers were set to agree on a joint text will be welcomed in the West after the IAEA report prompted Russia to complain that it was politicised and dimmed chances of a negotiated solution to the Iran nuclear dispute.

  Moscow's stance exposed big power divisions over how to best to resolve it: Western states seized on the IAEA report to try to step up pressure on Tehran in the form of farther-reaching economic sanctions, which Russia and China oppose.

  " It (the IAEA resolution) will maintain pressure on Iran," one Western diplomat said. He and others said they were waiting for Beijing to formally approve the resolution before officially submitting it to the board meetingm, which runs through Friday.

  But the draft board text -- expected to be co-sponsored by the United States, Britain, France, Germany, Russia and China -- would stop short of taking concrete actions such as reporting Iran once again to the U.N. Security Council.

  There has been concern that if the powers cannot settle their differences over how to nudge Iran into serious nuclear negotiations, then Israel, which feels endangered by the nuclear aspirations of its arch-enemy, will attack it.

  Israel is widely believed to have the Middle East's only nuclear arsenal to deter numerically superior enemies, but has never confirmed or denied it.

  The United States and its allies faced a dilemma ahead of this week's IAEA governors meeting: press for a strongly worded resolution and risk Russian and Chinese opposition, or accept a weaker text in order to preserve big-power unity.

  Russia has significant trade ties with Iran and also built its first nuclear power plant, launched at Bushehr earlier this year. China is a big importer of Iranian oil.

By Olivia Rondonuwu and Jason Szep

  NUSA DUA, Indonesia (Reuters) - Southeast Asian nations endorsed Myanmar on Thursday for the chairmanship of its regional grouping in 2014, gambling that the isolated country can stick to reforms begun this year that could lead it out of half a century of isolation.

  But U.S. President Barack Obama cautioned that Myanmar, also known as Burma, must still demonstrate improvements in human rights in his first remarks since the authoritarian regime freed hundreds of political prisoners in October and vowed more reforms in the weeks ahead.

  " Some political prisoners have been released. The government has begun a dialogue. Still, violations of human rights persist," Obama said in a speech to the Australian parliament ahead of joining Asian leaders on the Indonesian resort island of Bali for an East Asia Summit.

  " So we will continue to speak clearly about the steps that must be taken for the government of Burma to have a better relationship with the United States."

  Myanmar's chairmanship of the 10-member Association of South East Asian Nations (ASEAN), announced at a summit of its leaders in Bali, is a risky gambit for the regional grouping.

  While it gives Myanmar coveted international recognition, it could backfire by provoking Western boycotts of ASEAN events in 2014 if Myanmar's new government backslides on reforms and fails to convince the United States and Europe to end sanctions imposed in response to abuses by its former military rulers.

  Such boycotts would be an embarrassment for Southeast Asia, a region of about 600 million people, at a time when it wants to be seen as a counterpoint to China's growing influence in Asia.

  " The change in Myanmar in the last six months, by Myanmar standards, is absolutely breathtaking," said Hal Hill, a professor of Southeast Asian economies at the Australian National University.

  " But has Myanmar reformed enough to satisfy the Europeans and the Americans? At the moment, not yet. It is very promising but it is not yet embedded and credible," he said.

  The United States and European Union have applauded Myanmar's recent freeing of political prisoners but want deeper changes, including peace with restive ethnic groups, before they will consider lifting sanctions that have isolated the country and driven it closer to China.

  But Southeast Asia has moved quickly to embrace change in the resource-rich former British colony, whose strategic location between rising powers India and China, and vast, untapped natural-gas resources, are drawing investor interest.

  " Be assured that we are now growing into a democratic society," Ko Ko Hlaing, chief political adviser to the Myanmar president, told reporters.

  Kyaw Hsan, Myanmar's Information and Culture Minister, told reporters more reforms were in store. " We are hoping for a more open country with a thriving democracy and one that is active in the local, regional and international arena."

  A senior Myanmar Home Ministry official told Reuters on Wednesday the government was ready to release more political prisoners.

  Countries across Southeast Asia welcomed the chairmanship as a critical milestone after years frustration over Myanmar's isolation as the region approaches a European Union-style Asian community in 2015.

  " We believe that with the positive improvements in Myanmar right now, this has shown that Myanmar would like to come back to the democratic way," Thai Foreign Minister Surapong Towijakchaiku told reporters on the sidelines of the ASEAN summit in Bali.

  " MOMENTUM FOR REFORMS"

  Myanmar has embarked on a series of reforms since the army nominally handed over power in March to civilians after the first elections in two decades.

  The junta was replaced by a military-dominated civilian government in a process mocked at the time as a sham to seal authoritarian rule behind a democratic facade.

  Since then, recent overtures by Myanmar's government have included calls for peace with ethnic minority groups, some tolerance of criticism, the suspension of an unpopular Chinese-funded dam project and the legalisation of labour unions.

  President Thein Sein has also reached out to democracy leader Aung San Suu Kyi, who was freed last year from 15 years of house arrest.

  Her National League for Democracy (NLD) is expected to decide on Friday whether to re-register as a political party to contest imminent by-elections.

  An official in Suu Kyi's party said Myanmar's ASEAN chairmanship would spur more political change.

  " Their decision is tantamount to encouraging the present Myanmar government to step up the momentum for reforms," Nyan Win, a senior NLD official, told Reuters. " Myanmar's political activities will become more vibrant after assuming the chair."

  Indeed, Indonesia's foreign minister, Marty Natalegawa, said the chairmanship would likely open Myanmar further. " I am quite convinced this will have a huge multiplier effect."

  He said there were no conditions attached to the decision.

  " But I think we all know what we want to see."

  " REAL CHANGES"

  The United States has had strained relations with Myanmar since the former military junta, which took power in a 1962 coup, killed thousands in a crackdown in 1988.

  U.S. Secretary of State Hillary Clinton said last Friday that Myanmar appeared to be making some " real changes" to its political system but needs to pursue more reform.

  Myanmar's government has responded by urging the United States to lift sanctions, describing its reforms as genuine.

  The country, as big as France and Britain combined, is developing ports on the Indian Ocean and Andaman Sea that, if combined with proposed rail and pipeline projects, would allow cargo ships to bypass the Straits of Malacca.

  That would open the way for faster delivery of oil from the Middle East and Africa to China and other countries in the region straddling the Mekong River.

  India, Japan and Southeast Asia have sought to ramp up engagement, largely to counterbalance China's influence and to gain a toehold in a country whose proven gas reserves have tripled in the past decade to around 800 billion cubic metres, equivalent to more than a quarter of Australia's, BP Statistical Review figures show.

By Caren Bohan and Laura MacInnis

  CANBERRA (Reuters) - President Barack Obama said on Thursday that the U.S. military would expand its role in the Asia-Pacific region despite budget cuts, declaring America was " here to stay" as a Pacific power which would help shape the region's future.

  China, which has longstanding fears that its growing power could be hobbled by U.S. influence, voiced misgivings about Obama's announcement of a de facto military base in Australia.

  Obama acknowledged China's unease at what it sees as attempts by Washington to encircle it, pledging to seek greater cooperation with Beijing.

  The U.S. military, turning its focus away from Iraq and Afghanistan, would be more broadly distributed in Asia, particularly Southeast Asia, more flexible and help build regional capacity, he told the Australian parliament.

  " As we end today's wars, I have directed my national security team to make our presence and missions in the Asia Pacific a top priority," Obama said in a major speech on Washington's vision for the Asia-Pacific region.

  " As a result, reductions in U.S. defence spending will not -I repeat, will not - come at the expense of the Asia Pacific."

  He added: " We'll seek more opportunities for cooperation with Beijing, including greater communication between our militaries to promote understanding and avoid miscalculation."

  Nervous about China's growing clout, U.S. allies such as Japan and South Korea have sought assurances from the United States that it would be a strong counterweight in the region.

  A first step in extending the U.S. military reach into Southeast Asia will see U.S. Marines, naval ships and aircraft deployed to northern Australia from 2012.

  That deployment to Australia, which by 2016 will reach a taskforce of 2,500 U.S. troops, is small compared with the 28,000 troops stationed in South Korea and 50,000 in Japan.

  But the presence in Darwin, only 820 km (500 miles) from Indonesia, will allow the United States to quickly reach into Southeast Asia and the Indian Ocean.

  " It was here in Darwin that our alliance was born during Australia's 'Pearl Harbor'," Obama, with his sleeves rolled up, told 2,000 Australian and U.S. troops in the tropical port, where he stopped off en route to Indonesia.

  More bombs were dropped on Darwin during a World War Two Japanese raid than in Hawaii, but Obama said U.S.-Australian troops regrouped and went on to major Pacific victories.

  " Here in Darwin and northern Australia we will write the next proud chapter in our alliance," said Obama, adding U.S. and Australian forces would ensure security of the Asian sealanes to the north which were critical for both economies.

  The new de facto U.S. base in Australia expands the direct U.S. military presence in Asia beyond South Korea and Japan and into Southeast Asia, an area where China has growing economic and strategic interests.

  It will also put more U.S. troops, ships and aircraft much closer to the South China Sea, over which Beijing has sovereignty disputes with several countries.

  Obama will raise the issue of the South China Sea during the security East Asia Summit on the Indonesian island of Bali later this week.

  CHINA QUESTIONS U.S. DEPLOYMENT TO AUSTRALIA

  China has questioned the new U.S. deployment, with a foreign ministry spokesman raising doubts about whether strengthening such alliances helped the region pull together at a time of economic gloom.

  But overall its official reaction has been restrained, with an impending leadership succession preoccupying the ruling Communist Party and leaving Beijing anxious to avoid diplomatic fireworks.

  Reaction from some state media was harsher, with a commentary from the official news agency Xinhua on Thursday saying that: " Every country in the region...has good reason to question the United States' ambition" .

  " In fact, it wouldn't come as a surprise if the United States is trying to seek hegemony in the region, which would be in line with its aspirations as a global superpower," said Xinhua.

  Indonesia, Southeast Asia's largest country and long wary of any expanded foreign military presence in the region, also warned that Australia deal came with risks.

  " What I would hate to see is if such developments were to provoke a reaction and counter-reaction precisely to create a vicious circle of tension and mistrust or distrust," Indonesian Foreign Minister Marty Natalegawa told reporters.

  Obama said the United States would seek to work with China to ensure economic prosperity and security in the region, but would speak candidly about issues such as human rights and raise security issues like the South China Sea through which $5 trillion dollars in trade sails annually.

  China has broad claims over the sea, also rich in oil, minerals and fishery resources. Vietnam, the Philippines, Taiwan, Malaysia and Brunei hold rival claims that have triggered several disputes in recent years.

  U.S. Secretary of State Hillary Clinton pointedly visited the Philippines on Wednesday, saying that no claimant should resort to intimidation to push its cause.

  Obama said the increased focus on the Asia-Pacific region was essential for America's economic future.

  " As the world's fastest-growing region - and home to more than half the global economy - the Asia Pacific is critical to achieving my highest priority: creating jobs and opportunity for the American people," he said.

  (Writing by Michael Perry Editing by Alex Richardson)

WASHINGTON, Nov 15 (Reuters) - Jack Lew, President Barack Obama's White House budget chief, said on Tuesday the congressional debt-reduction " super committee" was struggling to reach a deal before its November 23 deadline.

  Lew said the next few days were critical. " If you read the tea leaves they are struggling," Lew said. But he added: " They are not done, they are not finished with this."

  If the panel fails to reach a deal, or Congress blocks one, painful, across-the-board spending cuts of $1.2 trillion will be triggered in 2013.

  Lew, speaking at the Wall Street Journal CEO Council in Washington, said it was still very important for the committee to succeed because the automatic cuts that will be triggered were deliberately designed to be noxious.

  " The cuts that take effect in 2013 are an unacceptable set of policies," Lew said. " I'm rooting for success. I still think they can pull something out."

  If the panel fails, Lew said he believed there will be action on deficits at the end of 2012, after the presidential election, because there will be a " perfect storm" of circumstances that will force Congress's hand, including the looming expiration of the Bush-era tax cuts.

  The 12-member bipartisan panel, created after this summer's debt limit crisis, is tasked with finding at least $1.2 trillion of debt reductions over 10 years, but has just eight days to produce a deal.

  (Reporting by Tim Reid editing by Mary Milliken

* Q3 EPS 97 cents misses Wall St view of 98 cents

  * U.S. same-store sales up 1.3 pct

  * Shares off 1.9 percent (Adds executive comments, quarterly performance details)

  By Jessica Wohl

  Nov 15 (Reuters) - Wal-Mart Stores Inc's decision to absorb most of the rising food costs for its stressed U.S. shoppers and spend on its e-commerce business weighed on profitability, even as key U.S. sales rose for the first time in more than two years.

  Sales at U.S. discount stores open at least a year rose more than expected in the third quarter ended on Oct. 31, ending a string of nine straight quarterly declines. Same-store sales have now risen for four months in a row.

  But visits to stores were once again down from a year earlier, even as shoppers, on average, spent more per visit.

  Walmart U.S., the largest division of the world's largest retailer, held off on raising prices as much as it could to appeal to cost-conscious shoppers who remain concerned about the job market and overall economy.

  " They were clearly being aggressive in pricing and gaining share, but they didn't get the leverage on the cost side," said ITG Investment Research analyst John Tomlinson. He said the company might look for more price " givebacks" from vendors.

  Groceries cost Walmart U.S. about 4 percent more during the quarter. But the company only saw inflation of 0.7 percent across the entire store due to deflation in areas such as televisions, price cuts and customers trading down to less expensive options, said Walmart U.S. Chief Executive Officer Bill Simon.

  Shares of Wal-Mart were off 1.9 percent at $57.80 in early trading on Tuesday.

  The shares had been rising heading into the quarterly report, after Wal-Mart said in mid-October that U.S. same-store sales had continued to rise early in the period.

  Same-store sales account for about 98 percent of Wal-Mart's sales in the United States, so ending the slump at existing stores is critical for the company, whose international business has not grown as rapidly as some anticipated.

  Walmart customers remain worried about the U.S. job market, CEO Mike Duke said on a recorded call. The company's survey of mothers found that only one out of 10 viewed the economy as " good," he said.

  Sales momentum at Walmart U.S. and the Sam's Club warehouse chain position the company " exceedingly well for the holidays," Duke said.

  The company's efforts are coming at a cost. Unallocated corporate overhead and other expenses jumped about 40.7 percent to $536 million, due largely to Wal-Mart's investment in e-commerce, Treasurer Jeff Davis said on the call.

  U.S. TURNAROUND

  Sales at U.S. discount stores open at least a year rose 1.3 percent. That topped the company's forecast, which called for such sales, excluding fuel, to be down 1 percent to up 1 percent. It also exceeded the analysts' average forecast for a rise of 0.3 percent, according to Thomson Reuters data.

  Walmart is offering holiday season layaway for the first time in years and is advertising its low prices more than usual as it tries to win back shoppers that have flocked to competitors such as Dollar General Corp.

  The most popular toy on layaway so far has been LeapFrog Enterprises Inc's LeapPad, Simon said. The gadget, which is like a tablet computer for kids, is priced at about $99.

  Retailers account for a layaway sale when the customer pays for the item in full and picks it up, so many items that shoppers put on hold at the end of the third quarter will not count as sales until the fourth quarter.

  Walmart, which has been open on Thanksgiving for years, will start its big sales at 10 p.m. that night. It has also lowered some prices weeks before Black Friday, the day after Thanksgiving and the traditional kick-off to the holiday shopping season.

  Wal-Mart earned $3.34 billion, or 97 cents per share, from continuing operations in the third quarter, compared with $3.44 billion, or 95 cents per share, a year earlier. There were fewer shares outstanding during the most recent quarter.

  The company had forecast a profit of 95 cents to $1.00 per share. Analysts on average expected 98 cents, according to Thomson Reuters I/B/E/S.

  Net sales rose 8.2 percent to $109.5 billion.

  Wal-Mart forecast fourth-quarter earnings of $1.42 to $1.48 per share from continuing operations, up from $1.41 a year earlier. Analysts on average forecast $1.45.

  For the fourth quarter, the company expects Walmart U.S. same-store sales to be flat to up 2 percent. Such sales fell 1.8 percent a year earlier.

  At Sam's Club, Wal-Mart expects same-store sales, excluding fuel, to rise 4 percent to 6 percent. Last year, that unit posted a 2.7 percent rise. (Reporting by Jessica Wohl in Chicago Editing by Lisa Von Ahn and John Wallace)

BERLIN (Reuters) - Romance between two leading figures of Germany's Left party has boosted interest in the party as it tries to keep its foothold in national politics.

  She -- Sahra Wagenknecht -- is the fiery 42-year-old deputy leader of the Left party, while he -- Oskar Lafontaine -- is the 68-year-old former Social Democrat (SPD) leader who famously defected to the hard left in 2005, to the fury of his former party.

  " He wants a comeback, she wants to advance," Germany's Stern magazine wrote in its online edition on Monday, naming them a pair " with a mission" .

  The Left party has fallen to eight percent in opinion polls from its showing of almost 12 percent in 2009's federal election.

  Wagenknecht and Lafontaine already appear regularly in media and on chat shows. She could become party leader next year, he the lead candidate in the 2013 federal election, the speculation runs. The party is set to elect a new leader next year.

  " When two celebrities get together, they do not simply double their public impact, they multiply it many times over," media psychologist Jo Groebel told Focus magazine.

  Wagenknecht, dubbed " the beautiful Communist" by the mass-circulation newspaper Bild, has been compared to the historic heroine of the German left, Rosa Luxemburg, as she wears her hair swept up and favours long, flowing skirts.

  Luxemburg helped lay the foundations for Germany's Communist party and was murdered by right-wing paramilitaries in 1919.

  Lafontaine is a veteran of the German political scene, heading the SPD and serving as finance minister in the centre-left government of Gerhard Schroeder before the pair fell out.

  He later helped forge the Left Party from disgruntled left wingers of the SPD and former East German Communists. He was long seen as Wagenknecht's mentor.

  The married Lafontaine stunned delegates at a party conference on Saturday when he announced: " I have been living separately for some time, and have been in a close relationship with Sahra for some time. That's that. I have nothing more to say about it."

  Wagenknecht is also married, to film director Ralph Niemeyer. He wrote in his blog that the marriage had already moved into a love based on friendship.

  " When Sahra told me about Oskar, this was not a shock for me, rather it was more or less expected," he wrote. " But if she'd told me that the object of her desire was Helmut Kohl, then I would have shot myself with an air gun."