Judge Rosemarie Aquilina said the petition, filed on Thursday, violated the state's laws and constitution because it threatened pension benefits.

But the state's attorney general immediately appealed against the order.

Earlier, Governor Rick Snyder said the move towards bankruptcy would reverse decades of decay.

Bankruptcy would allow Detroit's state-appointed emergency manager, Kevyn Orr, to liquidate the city's assets to try to meet the demands of creditors and pensioners.

Mr Orr proposed a deal in June in which creditors would accept 10 cents for every dollar they were owed.

But two pension funds representing retired city workers have resisted the bankruptcy plan, and - with tens of thousands of creditors - the city is already facing a number of lawsuits.

In her ruling on Friday, Circuit Judge Rosemarie Aquilina sided with the pension plaintiffs.

She ruled that the 2012 law which allowed for bankruptcy to be filed was unconstitutional, as it enabled the state governor to jeopardise the pension benefits of public employees.

But it remained unclear what impact the ruling would have on the proceedings.

The BBC's Jonny Dymond, in Detroit, says it is just the first stage in a multi-layer legal system, but that it throws into question the stunningly complex rescue plan for the troubled city.

Shortly after, Michigan Attorney General Bill Schuette said he had appealed against Judge Aquilina's rulings on behalf of Governor Snyder.

'Basically broke'

Detroit is the largest US city ever to file for bankruptcy. In 2012, three smaller California cities - Stockton, Mammoth Lakes and San Bernardino - took the step.

It has been struggling for decades with spiralling debts - public services are nearing collapse and about 70,000 properties lie abandoned.

Known as Motor City for its once-thriving automobile industry, Detroit stopped debt repayments to unsecured creditors last month to keep the city running.

About $9bn of Detroit's debt is owed to the pension funds and retiree healthcare benefits of the city's 10,000 workers and 20,000 retirees.

Earlier on Friday, Gov Snyder said the city had filed for bankruptcy because it was "basically broke".

"We're the comeback state in Michigan, but to be a great state, we need Detroit on the path to being a great city again," he told Friday's news conference.

"Now is the opportunity to stop 60 years of decline," he added.

"We will come out with a stronger, better Detroit and a format to grow this city. The citizens of not just this city but the state deserve it."

Previously they were not allowed to lend at rates below a certain level set by the People's Bank of China (PBOC).

The People's Bank said it hoped the move would lead to lower costs for companies.

It is being seen as a significant part of the government's plan to make the economy more market-orientated.

"When Chinese President Xi Jinping came to power in March, he promised to reform the country's economy to encourage more balanced growth," said BBC Beijing Correspondent Celia Hatton.

"The announcement on bank interest rates is the first major change since that time," she added.

Analysts agree that it marks an important development in policy.

"It's a very big deal, probably more in terms of what it symbolises than the effect on the economy," said Mark Williams, chief Asia economist at Capital Economics.

"China has been talking about interest rate liberalisation for a long time, this is one of the biggest steps they could have taken," he said.

Even before this move, Chinese banks had some freedom to lend at rates below the official level, but very few chose to do so.

Convertible currency

While it might not have a huge impact on the economy, analysts think the move is an important step towards allowing China's currency to float freely on the currency markets.

The United States has long been calling for that to happen, arguing that China's currency has been kept artificially low, which gives companies producing there an unfair advantage.

"This underlines that China is moving to a fully convertible currency and floating exchange rates " said Flemming Nielsen, senior analyst at Danske Bank in Copenhagen.

"Liberalisation of interest rates is a necessary condition for convertible currency and floating rates and their next step will be to widen the daily trading band for renminbi. They should do that within the next three months," he said.

Mortgage controls

There remains an upper limit on how much interest banks are allowed to offer depositors. That currently stands at 3% with a small amount of leeway to go higher.

That relatively poor rate of return has encouraged Chinese savers to invest in unregulated investment products in the so called shadow banking system.

Controls on mortgage lending will also remain in place, to maintain the "healthy development of the housing market", the PBOC said.

"One of the dilemmas they have is that house prices continue to rise quite fast so they probably don't want across-the-board lower interest rates," said Mr Nielsen.

"We will probably have some downpayment requirements and they will maintain guidance on bank lending rates for first time home buyers while keeping tight credit conditions for second-time buyers," he added.

SAC Capital Advisors founder Steven Cohen, 57, faces civil charges over what the US government has called one of the biggest such fraud cases ever.

Mr Cohen did not properly supervise two traders who engaged in illegal insider trading, the SEC alleges.

But the fund said the charges had "no merit" and pledged to fight the case.

As a result of the illegal information, the traders made about $275m (£180m) for the fund, the government has alleged.

It added that Mr Cohen was aware of the information but rewarded one of his employees with a $9m bonus, instead of cracking down.

The SEC said: "Cohen received highly suspicious information that should have caused any reasonable hedge fund manager in Cohen's position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws."

The government agency is seeking to have Mr Cohen banned from managing funds in future, and seeks an unspecified amount of money.

The charges will not proceed to trial, but were filed as an administrative proceeding.

A spokesman for the defendant said: "Steve Cohen acted appropriately at all times."

Traders Mathew Martoma and Michael Steinberg have denied criminal insider trading charges and face trial in November.

Friday's charges are part of a long-running probe of SAC Capital Advisors, a fund worth about $15bn, which has seen nine current or former employees charged or implicated.

Samantha Power said this week she would seek to combat what she called the "crackdown on civil society" in countries including Venezuela.

She was speaking at a US Senate confirmation hearing on Wednesday.

The remarks prompted an angry response from Venezuela's President Nicolas Maduro.

"The Bolivarian Republic of Venezuela hereby ends the process... of finally normalising our diplomatic relations," said Venezuela's foreign ministry in a statement.

It objected to Ms Power's "interventionist agenda", noting that her "disrespectful opinions" were later endorsed by the state department, "contradicting in tone and in content" earlier statements by Secretary of State John Kerry.

Relations between the US and Venezuela have been strained in recent years. They last had ambassadors in each other's capitals in 2010.

Washington angered Caracas by backing the Venezuelan opposition's demand for a full recount of the presidential election in April to replace Hugo Chavez, who died in March.

Mr Chavez's anointed successor, Nicolas Maduro, won the vote by less than two percentage points.

In June, the two countries had tentatively agreed to work towards improving their strained relations, after Venezuela freed and deported a US filmmaker who had been held on conspiracy charges.

During a regional summit in Guatemala, Mr Kerry said he had agreed with Foreign Minister Elias Jaua on an "ongoing, continuing dialogue" in order to "establish a more constructive and positive relationship".

He said the US wanted to "begin to change the dialogue between our countries and hopefully quickly move the appointments of ambassadors between our nations".

Mr Jaua said at the time that for Venezuela it was important to build a relationship based on the principles of mutual respect and no interference in internal affairs.

Yuval Steinitz, minister responsible for international relations, said it would involve "heavyweight prisoners in jail for decades".

Mr Kerry announced on Friday that initial talks would be held in Washington "in the next week or so".

The Israeli minister's remarks are the first details of the deal.

Mr Kerry had declined to tell reporters in Amman what the two sides had agreed to, saying that the "best way to give these negotiations a chance is to keep them private".

The agreement came at the end of four days of frenetic shuttle diplomacy, on Mr Kerry's sixth visit to the region in the past few months.

Mr Steinitz told Israeli public radio that the agreement adhered to the principles set out by Prime Minister Benjamin Netanyahu for kick-starting the talks.

The release of prisoners would take place in stages, he said.

According to Israeli human rights group B'Tselem, 4,817 Palestinians are held in Israeli jails. The release of prisoners held before the 1993 Oslo peace accords has been a long-held Palestinian demand.

For their part, the Palestinians had committed themselves to "serious negotiations" for a minimum of nine months, said Mr Steinitz, who is a member of the prime minister's Likud Beiteinu party.

But he made clear that Israel had not accepted Palestinian pre-conditions, including a halt to settlement construction in the occupied West Bank and East Jerusalem.

"There is no chance that we will agree to enter any negotiations that begin with defining territorial borders or concessions by Israel, nor a construction freeze."

Israel and the Palestinians last held direct talks in 2010, which were halted over the issue of settlement-building.

Settlements are considered illegal under international law, although Israel disputes this.

He has returned to Moscow from Kirov, where a judge convicted him of embezzlement, in a case widely condemned as political.

The court ruled on Friday he could go back to Moscow until the appeal.

The jail term has been criticised by the US, EU and human rights groups.

Standing beside his wife Yulia, Navalny told a crowd of supporters at Yaroslavsky station on Saturday that "we are going to stand in the elections and we will win".

"We are a huge powerful force. We have taken away the Kremlin's privilege to put people in prison never to be seen again."

He was accepted as a candidate in the 8 September mayoral poll shortly before he was found guilty of embezzlement and there had been some doubt over whether he would run.

The anti-corruption activist said he would take part in campaigning for the election as long as it was possible.

A number of riot police were at the station and security forces were deployed in the surrounding area, Interfax news agency reports.

The BBC's Oleg Boldyrev who was there said it was a very upbeat start to an election campaign.

Hours after his conviction was announced in Kirov on Thursday, thousands of protesters took to the streets of Moscow in an unsanctioned demonstration, with reports of scuffles and dozens of people being detained.

President Vladimir Putin's spokesman Dmitry Peskov has since warned activists not to hold any more protests without official approval.,

Asked late on Friday whether there was any chance of Navalny being pardoned, Mr Peskov told reporters: "A convict first has to admit his guilt."

Navalny's release from custody in Kirov, 560 miles (900km) north-east of Moscow, had been sought by the prosecution as well as his defence.

The unexpected step was seen by some as an attempt to soothe public anger over a case that prompted Germany to question whether criminal justice was the main motive behind the trial. The US said it was "deeply disappointed and concerned" by the outcome.

Alexei Navalny, 37, rose to prominence before parliamentary elections in 2011, writing a blog in which he condemned the ruling United Russia party as "crooks and thieves".

The case brought against him in Kirov was that he led a group that embezzled timber worth 16m roubles ($500,000; £330,000) from the Kirovles state timber company while working as an adviser to governor Nikita Belykh.

Navalny will have to return to Kirov in a few weeks' time to appeal against the verdict.

With the conviction and appeal hanging over him, no-one can predict whether he will see the result of the elections as a free man, our correspondent says.

The Republican said the city - once the birthplace of the US car industry, now groaning under $18bn (£12bn) of debt - deserves a fresh start.

Detroit has faced decades of problems linked to industrial decline.

Public services are nearing collapse and about 70,000 properties lie abandoned.

Gov Snyder said the city had filed for bankruptcy on Thursday because it was "basically broke".

"We're the comeback state in Michigan, but to be a great state we need Detroit on the path to being a great city again," he told Friday's news conference.

"Now is the opportunity to stop 60 years of decline," he added.

"We will come out with a stronger, better Detroit and a format to grow this city. The citizens of not just this city but the state deserve it."

Gov Snyder was flanked by state-appointed emergency manager Kevyn Orr, who suggested last month that the city's long-term debt could be as high as $20bn.

Mr Orr addressed concerns that art works at the Detroit Art Institute or other assets would be auctioned to pay creditors.

"Right now there's nothing for sale," he said.

Mr Orr will be allowed to liquidate city assets to satisfy creditors and pensions, if the federal court bankruptcy filing is approved.

Detroit - known as Motor City for its once-thriving automobile industry - stopped unsecured-debt payments last month to keep the city running.

Mr Orr proposed a deal in June in which creditors would accept 10 cents for every dollar they were owed. The city is currently paying 38 cents on the dollar.

But two pension funds representing retired city workers resisted the plan.

About $9bn of Detroit's debt is owed to the pension funds and retiree healthcare benefits of the city's 10,000 workers and 20,000 retirees.

Ed McNeil, the lead negotiator for a coalition of 33 unions, told Reuters news agency the move was about "busting the unions".

With tens of thousands of creditors, Detroit already faced a number of lawsuits even before it filed for bankruptcy.