G20 gets economic warning; Wall Street climbs in March

A passerby walks in front of a retail shop displaying sale advertisement in Tokyo, March 27, 2009.

NEW YORK (Reuters) - World leaders traveling to London for this week's G20 crisis summit got a stark reminder on Tuesday about the size of the economic storm they face.

The Organization for Economic Co-operation and Development said the world economy will shrink far faster than it previously forecast and will send unemployment soaring, underscoring the need for extra steps to battle the crisis.

But even as the recession wore on, U.S. stocks closed out March with their best month's performance in more than six years.

World Bank President Robert Zoellick meanwhile announced a $50 billion program to counter the decline in world trade.

The 30-nation OECD, releasing its outlook as Japan said it was readying a third economic stimulus package, predicted that member economies would shrink 4.3 percent this year. In November, it had forecast only a 0.4 percent contraction.

"The world economy is in the midst of its deepest and most synchronized recession in our lifetime," the Paris-based OECD said. "We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010.

Both Japan and Germany announced big jumps in unemployment, underscoring the human cost of the crisis that leaders of the world's richest nations and biggest emerging economies must tackle when they meet in London on Thursday.

And U.S. economic reports of near-record low consumer confidence, plunging home prices and regional business slowdowns added to the tally. General Motors Corp (GM.N) also raised the possibility of more plant closings and job cuts.

STOCKS RISE

While indicators pointed to a worsening global economy, stock markets in New York and Europe moved higher.

The Dow Jones industrial average .DJI rose 1.2 percent on Tuesday .N, adding 7.7 percent for the month. The broader S&P 500 climbed 8.5 percent in March, and both the Dow and the S&P had their best one-month percentage gains since October 2002.

Earlier, Europe's FTSEurofirst index .FTEU3 rose 4.3 percent on optimism about the banking sector. .L Japan's Nikkei stock average earlier dropped 1.5 percent on the final day of the nation's financial year. .T

But the MSCI World index .MIWD00000PUS, up 2.3 percent, was still down more than 10 percent this quarter after losing 22.7 percent in the October-December period last year.

U.S. President Barack Obama arrived in London for the talks on Tuesday evening, carrying a hefty agenda for how he believes the world should deal with the crisis.

This will be the first major overseas trip of Obama's presidency, during which he will hold bilateral talks with the leaders of China and Russia before going on to a NATO summit and visiting the Czech Republic and Turkey.

But the economy he left behind was suffering. Prices of U.S. single-family homes in January plunged a record 19 percent from a year earlier, according to a Standard & Poor's Case-Shiller report.

U.S. consumer confidence remained near a record low hit in February, said business research group The Conference Board. Midwest business activity shrank in March at the most severe rate since 1980, according to the Institute for Supply Management.

U.S. automakers, who later this week are expected to report dismal March sales, were scrambling to respond to their customers' bleak economic reality and to their government's blunt demand for more radical restructuring.

GM, which a day earlier saw its turnaround plan rejected by the Obama administration and its CEO forced out, announced a program to cover payments if customers lose their jobs. Ford Motor Co (F.N) offered a similar plan.

Separately, GM's new CEO said the automaker would likely close more plants and cut more jobs, and faces a higher probability of bankruptcy to shed debt.

"The expectation is that we need to go deeper," said Fritz Henderson, who replaced ousted CEO Rick Wagoner. "We need to go deeper and we need to go faster."

Chrysler LLC CBS.UL, meanwhile, was being visited by Fiat (FIA.MI) chief Sergio Marchionne, who flew to Detroit on Monday after Obama gave the company a 30-day deadline to craft a deal with the Italian automaker.

JAPAN STIMULUS

In Japan, Prime Minister Taro Aso pledged to submit an extra budget to fund a new stimulus package to fight recession at home but was silent on how much the government would spend.

Germany reported its biggest jump in unemployment in March since the economic crisis began, figures from the Federal Labor Office showed.

"The German labor market is increasingly feeling the pain of the country's worst recession in decades," economist Carsten Brzeski of ING Financial Market said after adjusted numbers for March took German unemployment to 8.1 percent.

Inflation for the 16 European countries in the euro zone, was down to a record low of 0.6 percent year-on-year in March, bolstering expectations of an ECB rate cut on Thursday.

Markets expect the European Central bank (ECB) to reduce rates by half a percentage point to 1.0 percent and perhaps announce measures to boost liquidity.

British Prime Minister Gordon Brown, the host of the G20 summit, said leaders would only succeed in tackling the economic and financial crisis if all nations committed to act together.

"Leaders meeting in London must supply the oxygen of confidence to today's global economy and give people in all of our countries renewed hope for the future," he said.

(Writing by Brian Moss; Additional reporting by Yuzo Saeki in Tokyo, Stella Dawson and Dominic Lau in London, Reuters bureaus worldwide; Editing by Keiron Henderson, Gary Hill)