Tuesday, 18 November 2008

IMF says more countries seek help, banks struggle

LONDON (Reuters) - The International Monetary Fund (IMF) said on Tuesday the number of countries seeking help to cope with a spreading economic crisis was growing every day.

Japan's economy minister said recession in the world's second-biggest economy could last longer than feared. Measures of inflation fell sharply in the United States and Britain, paving the way for further interest rate cuts.

A decision by Ford Motor Co to sell its controlling interest in Japan's Mazda Motor Corp illustrated the alarm gripping America's auto industry and the impact of U.S. troubles on economies well beyond its frontiers.

The banking sector, seat of a crisis now inflicting a sharp slowdown across the globe, also showed the strain. Britain's Barclays altered fund-raising plans to quell shareholder anger and profits in Japan's largest bank tumbled.

The crisis has spread steadily in recent weeks beyond the major developed countries, with states from Ukraine and Iceland to Pakistan seeking help from the IMF.

"It is true to say that because of globalisation the amount which the IMF is asking for is increasing, and increasing rapidly, and the list of countries asking for some support is increasing every day," IMF Managing Director Dominique Strauss-Kahn told a news conference on a visit to Libya.

He said earlier this week his organisation was likely to need at least $100 billion in extra funding over the next six months in order to help countries out of the mire.

The deepening economic gloom prompted shares to slide.

U.S. stock futures pointed to a weak start on Wall Street. European shares fell 1.2 percent and Japan's Nikkei shed 2.3 percent.


Barclays, facing shareholder ire following a decision to take 5.8 billion pounds from Middle East investors on terms tougher than the British government offered, cancelled this year's executive bonuses, as U.S. investment bank Goldman Sachs and Swiss bank UBS have done.

It also said Qatar Holding LLC and Sheikh Mansour Bin Zayed Al Nahyan would each make up to 250 million pounds ($372.9 million) of reserve capital instruments available to existing shareholders -- effectively offering the prospect of enjoying some of the higher rates of return agreed to Gulf investors.

Barclays, one of the four biggest UK banks, had declined to accept any capital from the government under a 37 billion pound bailout, wary of conditions imposed on their operations.

Japan's biggest bank, Mitsubishi UFJ Financial Group, announced first half profit had tumbled 64 percent and stuck to its recently lowered full-year forecast.

Australia's biggest investment bank, Macquarie Group, said it was heading for its first fall in annual profit in 17 years.

HSBC added to the employment gloom, saying it would cut a further 500 staff in Asia, mostly in Hong Kong, due to deteriorating economic conditions and caution about next year.

Citigroup Inc, the second biggest U.S. bank, revealed plans on Monday to cut 52,000 jobs by next year, the second-largest corporate lay-off plan in history.


U.S. producer prices declined by a record 2.8 percent in October after energy prices slumped, showing pipeline inflation pressures receding sharply although a key measure of core inflation at the farm and factory gate rose more than forecast.

In Britain, already officially in recession, headline inflation dropped to 4.5 percent in October from 5.2 the previous month.

The larger than expected fall heightened expectations of a substantial cut in the UK's 3.0 percent interest rate next month to stimulate the economy and temper growing fears of deflation, following a dramatic 1.5 percentage point cut this month.

In a further sign of the crisis spreading to the broader economy, major British retailer John Lewis Partnership's department store sales fell 14 percent year-on-year in the latest week.

Politicians are seeking ways of stimulating demand, possibly by tax cuts, while others resort to more innovative measures.

Taiwan said it would issue shopping vouchers worth T$3,600 ($108) to its citizens. Premier Liu Chao-shiuan said the plan was expected to contribute 0.64 percent to GDP.

In Washington, lawmakers argued over a proposal by Senate Democrats for a $25 billion bailout loan for the auto industry to stave off an even wider economic collapse.

"The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.

Automakers have been hit by a collapse in consumer spending, triggered by a housing crash and worsened by rising unemployment. Officials say even with major stimulus measures in place, it will take a long time for the U.S. economy to recover.

"There's going to be stress in the capital markets for a number of months here because housing prices are still declining and I think it's moved beyond housing," Treasury Secretary Henry Paulson said at a conference.

Paulson and Federal Reserve Chairman Ben Bernanke will testify to Congress later on the $700 billion U.S. bailout plan.

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