NEW YORK President Barack Obama's promotion of an economic stimulus, possible creation of a government "bad bank" to absorb toxic assets and Fed readiness to buy long-term bonds all gave hope of forceful U.S. action soon to help ease the global financial crisis.
The scale of the crisis was underlined on Wednesday when the International Monetary Fund cut its forecast for world economic growth this year to the weakest level since World War Two. The IMF also warned that it risks running out of money.
New reports from Europe showed that the recession has deepened there, but offered a more positive view of French and German consumer sentiment. Japan vowed again to be the first economy to pull out of recession, with a jobs creation plan.
Obama pitched his $825 billion economic stimulus to 13 business leaders as the House of Representatives debated the plan. The House was expected to pass it later in the day despite some Republican opposition. The Senate will also have to approve a package, which Democrats hope will be ready for Obama to sign into law by mid-February.
Obama also met with his economic team to discuss tighter oversight of the banking industry, at the center of the problems that led the world's largest economy into a recession that has spread across the globe.
The U.S. Federal Reserve held interest rates steady near zero and said it is prepared to buy long-term Treasuries if that would help improve credit market conditions.
"A gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant," the Fed said, adding that it "will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability."
European shares rose for a third straight session, with the FTSEurofirst 300 .FTEU3 closing up 3.2 percent in part due to optimism over swift moves by the new U.S. administration. Japan's Nikkei .N225 added 0.6 percent.
Oil prices rose, tracking Wall Street near the close. [ID:nN28532166] On the New York Mercantile Exchange, March crude rose 1.39 percent at $42.16 a barrel.
The IMF slashed its projection for 2009 global growth to just 0.5 percent from a November estimate of 2.2 percent.
It warned that deflation risks were rising and that toxic assets -- high-risk debt accumulated in the global credit boom that went bust 17 months ago -- needed to be removed from the banking system.
For weeks, U.S. policymakers have been floating the idea of a so-called bad bank, also known as an aggregator bank [ID:nN28525578], and comments on Wednesday by an economic adviser to the Obama campaign fueled hopes it will become a reality.
"The natural next step is, which is real simple, you take the bad assets out, the balance sheets are hit really hard, you recapitalize banks with different rules, and they go out again and lend," Laura Tyson said at the World Economic Forum in Davos, Switzerland.
A poll of the CEOs attending the annual Davos meeting of the world's business and political elite found that confidence has plunged to a new low.
The U.N. International Labor Organization said that if the global recession deepened in 2009, another 51 million jobs worldwide could be lost in a worst-case scenario.
In France, a survey showed consumer confidence rose in January to its strongest since last April, although it remained heavily negative and a separate report showed that industrial companies expected demand for goods to continue to fall in the first quarter.
In Germany, market research group GfK's forward-looking gauge of consumer sentiment showed that morale should hold steady in February, beating expectations.
Other data indicated a deepening recession in Europe.
The Conference Board's Leading Economic Index for the euro zone fell 0.9 percent in December to 93.3 points after declines in November and October, the research group said.
The index "indicates that there is no improvement in sight," said Jean-Claude Manini, the Conference Board's senior economist for Europe.
And in Italy, business sentiment fell in January for the eighth month running to its lowest on record.
In Japan, Prime Minister Taro Aso vowed to create 1.6 million new jobs, reiterating that Japan would try to be the first country in the world to pull out of recession.
(Writing by Martinne Geller; Reporting by Reuters bureaus around the world; Editing by Ruth Pitchford, Steve Orlofsky, Gary Hill)