U.S. rejects auto-rescue plans, world markets tumble

By Brian Moss

NEW YORK (Reuters) - U.S. President Barack Obama rejected restructuring plans from General Motors GM.N and Chrysler on Monday and three European governments came to the aid of struggling lenders, sending markets tumbling on renewed worries about the health of the global financial system.

A White House task force rebuffed restructuring plans and pleas for billions in funding from the two automakers, and forced GM Chief Executive Rick Wagoner to quit.

Obama said Wagoner's departure was a recognition that the company needed new direction, but he added that the government did not want to take charge of GM.

"What we are interested in is giving GM an opportunity to finally make those much needed changes that will let them emerge from this crisis a stronger and more competitive company," Obama said.

"We cannot, we must not, and we will not let our auto industry simply vanish. But we also cannot continue to excuse poor decisions," he said.

GM will get funds to keep operating for 60 days, but new loans it is seeking amounting to as much as $30 billion will be on hold until it reworks its restructuring plan.

Chrysler, controlled by Cerberus Capital Management CBS.UL, was told to complete a planned alliance with Italy's Fiat (FIA.MI) within 30 days or risk liquidation.

Chrysler's CEO Bob Nardelli said later that his company had reached an agreement on a framework for an alliance with Fiat that has the support of the U.S. Treasury, which could invest another $6 billion.

"The problems that GM faces today in my opinion are significantly exacerbated by the recession, and this is a reminder of the cost of trying to repair the economy," said Jim McDonald, chief investment strategist at Northern Trust in Chicago.

The White House's unexpectedly emphatic rejection of the automakers' plans and further trouble for banks in Europe sent world stocks tumbling and lifted government bonds.

The Dow Jones industrial average, which had added nearly 7 percent the previous week, tumbled 3.3 percent .N after stock market falls in Europe .FTEU3 and Tokyo .T that sent the MSCI all country index down more than 4 percent to a one-week low. GM shares tumbled 25.4 percent.

U.S. crude oil futures slid 7.58 percent to $48.41 a barrel, a loss of $3.97, but the dollar, yen and U.S. Treasury prices rose as fears of bankruptcy for automakers and worries about banks worldwide spurred safe-haven buying.

LOW EXPECTATIONS FOR SUMMIT

The market gyrations came as British Prime Minister Gordon Brown prepared to host a summit of G20 leaders beginning on April 2 in London.

Leaders of the biggest economies will commit to pursuing economic policies that do not hurt each other, according to a draft communique obtained by Reuters.