WRAPUP 1-Murdochs bow to British inquiry in hacking scandal

Murdochs change mind, agree to answer UK committee's questions

* U.S. Attorney General says investigations of News Corp "progressing"

* Police arrest former News of World deputy editor

By Kate Holton and Georgina Prodhan

LONDON, July 15 (Reuters) - Rupert Murdoch and his son James have bowed to pressure to answer questions from Britain's parliament over alleged phone hacking crimes at one of his newspapers and the U.S. Attorney General said a similar investigation was underway in the country.

"There have been members of Congress in the United States who have asked us to investigate those same allegations and we are progressing in that regard using the appropriate Federal law enforcement agencies," Attorney General Eric Holder told reporters at a conference in Sydney,Australia.

The Federal Bureau of Investigation has said it was looking into allegations News Corp tried to hack into the phones of 9/11 victims.

The public disgust that erupted over reports that one of Murdoch's News Corp newspapers had hacked into the voicemails of murder victims has so far forced Murdoch to shutter the offending tabloid, Britain's News of the World, and back out of a $12 billion business deal to buy the shares he does not own of British satellite broadcaster BSkyB .

Murdoch, long accustomed to having entree to the halls of power in Britain instead of being forced to kowtow, and his son James, 38, his heir apparent, initially had said they would not face questions from the British parliament's media committee over phone hacking.

They reversed their decision on Thursday after Prime Minister David Cameron said they should attend and as politicians across the spectrum united in denouncing the hacking that initially had seemed to focus on celebrities and politicians but has become far more widespread.

British Business Secretary Vince Cable, on BBC radio, said of the swift volte-face by politicians queueing up to condemn the Murdochs: "It is a little bit like the end of a dictatorship when everybody suddenly discovers they were against the dictator."

Rebekah Brooks, who runs Murdoch's British newspaper arm, News International, also has agreed to be grilled by the committee. She was a friend of Cameron, who has echoed calls for her to resign.

Speculation was growing at News International's east London headquarters that the company might be reconsidering its position on Brooks after resisting pressure for her to quit, a source familiar with the situation said.

A major News Corp shareholder said Brooks should quit because of the scandal that has engulfed the company.

"For sure she has to go, you bet she has to go," Saudi billionaire Prince Alwaleed bin Talal told the BBC's Newsnight programme. Alwaleed says his Kingdom Holding is the second biggest shareholder in News Corp and controls seven percent of the votes.

Murdoch has denied that News Corp was drawing up plans to separate its newspaper holdings, which are at the heart of the controversy, from the rest of the media company.

It includes the Fox broadcast network in the U.S., the 20th Century Fox movie studio and newspapers around the world, including The Wall Street Journal, the New York Post and Britain's The Times and the Sun tabloid.

"HANDLED CRISIS WELL"

Murdoch said News Corp had handled the crisis "extremely well in every way possible" making just "minor mistakes" and called reports he would split off his newspaper assets "pure rubbish".

Speaking to The Wall Street Journal, Murdoch said his son had acted "as fast as he could, the moment he could" to deal with the scandal.

The Australian-born media mogul's comments came as he faced investigations on both sides of the Atlantic.

In addition to the probe by British lawmakers keen to break his grip on politics, the Federal Bureau of Investigation said it was looking into allegations News Corp tried to hack into 9/11 victims' phones.

"We are aware of the allegations and are looking into it," said Peter Donald, an FBI spokesman in New York.

The phone-hacking scandal deepened on Thursday with the arrest by British police of a ninth suspect, Neil Wallis, a former deputy editor of News of the World, on suspicion of conspiring to intercept communications.

His detention added weight to a government call for the media regulator to decide whether Murdoch's business was fit to run British television stations.

In addition, Britain's senior police chief came under fire after his force said Wallis had been hired as a consultant by the police.

Paul Stephenson, London's police commissioner, was summoned for a 90-minute meeting with the city's mayor after the capital's force said it had employed the journalist between October 2009 and September 2010.

The disclosure was an embarrassment for a police force facing questions about its links to tabloid reporters and prompted Home Secretary (interior minister) Theresa May to write to Stephenson asking for an explanation.

RESTRICTED IN WHAT MAY SAY

Brooks, who edited the News of the World at the time of one of the most serious alleged incidents, said the police inquiry might restrict what she could say. Her concern was echoed by James Murdoch in a letter to the committee confirming his and his father's attendance.

The session is certain to be hostile. During a heated debate on the hacking scandal on Wednesday, Dennis Skinner, a veteran left-wing Labour member of parliament described Murdoch as "this cancer on the body politic".

Murdoch and other senior executives have denied any knowledge of the alleged practices which are having repercussions around the world.

Spotify Will Change How You Listen to Music Forever (VIDEO)

We all know the Internet changed how we listen tomusic. Now, Spotify, a service that has been successful overseas for three years, is about to COMPLETELY alter how we listen to music on the Internet. And as a music lover, I couldn't be more psyched for the makeover. See, something that's driven me nuts lately is that we have tons of musicsubscription services, but barely any freedom with them.

For instance, you can listen to Pandora (free, if you're willing to put up with ads) and listen to music that the Internet radio service chooses for you based on your preferences, and that's cool, because it might turn you onto artists you've never thought to listen to before. OR it might drive you crazy when you make a "Madonna Channel," hoping for some "Like a Prayer" action, and it starts spewing Milli Vanilli. Gross!

Or you can go to the ultimate online music store, Apple's iTunes, and listen to a preview of a track before shelling out $1.29 on average to download and "own" the track.

But Spotify seems like it's going to give us the best of both worlds: Instant access to ANY song, ANY artist, right away for free (with ads) or for a $4.99 or $9.99 monthly subscription rate. The cheaper one called Unlimited gets you ad-free listening, and the most expensive called Premium gets you unlimited access without ads, plus you can listen to whatever you like on a mobile device, as well as your computer, offline or online.

This is what we've all been waiting for! It's what we've always dreamed and imagined listening to music online should BE! Seriously, how many times have you thought, "Gee, I would absolutely LOVE to listen to 'Baby Got Back,' but it's not like I have a Sir Mix-a-Lot CD hanging around, and do I really need to pay $0.99 for that???" No prob. Spotify would have your back. Literally. You can search for it and listen to it in under 200 milliseconds. No joke! It's enough to make you think ... Pandora, iTunes, Google Music, Amazon Cloud Player, Rhapsody who?

Ahh, I have such a crush right now on this service, can you tell? Here's a video promo for Spotify that, I swear, will have you equally as excited ...

Looking for debt deal, Obama outlines cuts

WASHINGTON — President Obama implored congressional leaders Thursday to reach a deal on raising the nation's $14.3 trillion borrowing limit by this weekend to reassure jittery world financial markets, and he suggested he could settle for a smaller deficit-reduction package than he originally sought.

Rather than continue to push for $4 trillion in savings over the next decade, Obama outlined a plan that would achieve roughly $2 trillion, almost entirely from spending reductions. That marks a major concession — one the president is likely to address at a news conference scheduled for 11 a.m. ET this morning.

At the same time, Senate Republican leader Mitch McConnell and Democratic leader Harry Reid forged ahead with an even smaller deal of their own, one that represents a second fallback plan. It would allow Obama to raise the debt limit and create a process by which Congress would vote in the future on spending reductions.

Two Democratic and two Republican officials with direct knowledge of the continuing negotiations offered these details on the condition they not be identified speaking about private meetings:

• STORY: Impact of U.S. default in dispute

In Obama's $2 trillion plan, tax increases would come from a 35% limit on itemized deductions and the elimination of special-interest tax breaks for oil and gas companies, corporate jet owners and producers of ethanol. If tax rates on upper-income people returned to 36% and 39.6% in 2013, as Obama wants, the limit on deductions would save about $120 billion.

Obama also is seeking to extend a payroll tax cut enacted last December for another year and possibly extend it to small businesses. For that reason, Republicans could claim that the package is revenue-neutral rather than representing a tax increase — but at the meeting, Republicans still refused to go along.

The remainder of the package would be spending cuts and savings on interest, but not the major reductions in Medicare or Social Security that Obama had been willing to accept as part of a $4 trillion deal.

"He wants to keep hope alive for the big deal, but he also knows the clock is running," one of the Democratic official said.

McConnell said the session was a good one. "We're going to continue to discuss a way forward over the next couple of days and see what happens," he said.

Fueling Obama's demand for swift action: Standard & Poor's ratings service placed the United States on watch for a possible downgrade of its credit rating. It warned of "at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."

Speaking to Republicans and Democrats meeting at theWhite House for a fifth consecutive day, Obama and Treasury Secretary Timothy Geithner said any deal should include new borrowing authority to avoid default as well as a plan to reduce future budget deficits.

That prompted House Speaker John Boehner to throw the challenge back at the president, arguing that Obama still had not presented a plan to resolve the nation's debt problem.

Thursday's meeting was more cordial than some of the previous ones. Republicans listened patiently to pitches about health care savings, taxes and debt caps from top administration officials. House Majority Leader Eric Cantor, the outspoken leader of congressional conservatives, was silent.

At the end of the meeting, Obama tasked congressional leaders to reach a conclusion by the weekend, urging that it be as bold on deficit reduction as politically possible.

"It's decision time," the president said, according to a Democratic official. "We need concrete plans to move this forward."

The fledgling bipartisan plan being devised by McConnell and Reid — which would raise the debt limit and appoint yet another group of lawmakers to come up with spending cuts — might represent the final fallback plan if all else fails.

Geithner warned that there is no way to extend the Aug. 2 deadline for the government to raise the debt ceiling and avoid a first-ever default on its loans.

"We have looked at all available options, and we have no way to give Congress more time to solve this problem," Geithner said. "We're running out of time."

Before the meeting, key Republicans continued to reject any discussion of tax increases. "Republicans will not be reduced to being tax collectors for the Obama economy," McConnell said.

Without bigger tax increases — such as raising tax rates on individuals with income over $200,000 and couples over $250,000 beginning in 2013 — the president and congressional Democrats won't consider politically difficult cuts in popular benefit programs.

Those could have included raising the age for Medicare from 65 to 67 over the next two decades, as well as changing the way inflation is measured, which would reduce Social Security cost-of-living increases.

Pentagon reveals hackers' theft of sensitive data

The Pentagon has revealed that it suffered one of its largest losses ever of sensitive data in a March cyberattack by a foreign government - a dramatic example of why the military is emphasizing deeper defenses of its computer networks, collaborating with private industry and taking new steps to stop "malicious insiders."

William Lynn, the deputy secretary of defense, said Thursday in a speech outlining the new strategy that 24,000 files containing Pentagon data were stolen from a defense industry computer network in a single intrusion in March. He offered no details about what was taken, but said the Pentagon believes the attacker was a foreign government. He didn't say which nation.

"We have a pretty good idea" who did it, Lynn said in an interview before the speech. He would not elaborate.

Many cyberattacks in the past have been blamed on China or Russia. One of the Pentagon's fears is that eventually a terrorist group, with less at stake than a foreign government, will acquire the ability to not only penetrate U.S. computer networks to steal data but to attack them in ways that damage defenses or even cause deaths.

In his speech at the National Defense University, Lynn said that sophisticated computer capabilities reside almost exclusively in nation-states, and that U.S. military power is a strong deterrent against overtly destructive cyberattacks. Terrorist groups and rogue states, he said, are a different problem and harder to deter.

"If a terrorist group gains disruptive or destructive cybertools, we have to assume they will strike with little hesitation," he said.

The Pentagon has long worried about the vulnerability of its computer systems. The concern has grown as the military becomes more dependent on its own computers and those of its defense contractors, including providers of fuel, electricity and other resources used by the military.

At his Senate confirmation hearing last month, Defense Secretary Leon Panetta cited "a strong likelihood that the next Pearl Harbor" could be a cyberattack that cripples the U.S. power grid and financial and government systems.