Obama pledges economic action, Britain sets stimulus

NEW YORK (Reuters) - President-elect Barack Obama formally set his economic team with a pledge to act "swiftly and boldly" and Britain unveiled a round of tax cuts and spending to stem a slide into deep, lengthy recession.

Global markets rallied for their second consecutive session after the U.S. government moved to rescue the nation's No. 2 bank, Citigroup Inc (C.N), with a $20 billion capital injection and a promise to shoulder hundreds of billions in risky assets.

That bailout, announced late on Sunday, sent a wave of relief through markets around the world that the U.S. government would not let Citigroup suffer the fate that brought down Lehman Brothers (LEHMQ.PK) and Bear Stearns.

In London, British Finance Minister Alistair Darling told Parliament he would cut sales taxes and offer new help for small businesses in a plan that would cost 20 billion pounds.

That package would set the world's fifth-largest economy on a path for future tax increases for high earners, he warned, and includes a surprise hike in payroll taxes for all but the nation's poorest after the next election.

As expected, Obama announced in Chicago he would nominate New York Federal Reserve Bank President Timothy Geithner, 47, as Treasury secretary and Lawrence Summers, 53, as director of the National Economic Council.

The two will head the Obama administration's efforts to fight the downturn that has sent the world's largest economy into its worst tailspin in decades.

"Even as we face great economic challenges, we know that great opportunity is at hand -- if we act swiftly and boldly. That's the mission our economic team will take on," Obama said.

Stock markets briefly pared gains on disappointment that Obama did not offer specifics on the size of his stimulus package expected to be rolled out in January.

"He wants to see stimulus enacted right away, but does not mention any specifics or numbers," said Lou Brien, market strategist with DRW Trading Group.

WIDESPREAD RESPONSE

The Citigroup rescue and statements from European leaders that they would seek to protect European industry, especially the automobile sector, were the latest efforts by government officials to restore confidence in battered global markets.

The Standard and Poor's Index of the largest 500 U.S. companies .SPX surged 6.5 percent, helped by the 58 percent rally in Citigroup shares.

"I am personally committed to Citigroup. No doubt about that," Saudi Prince Alwaleed bin Talal, the bank's largest investor, told CNBC television. The prince agreed last week to increase his Citigroup stake to 5 percent from less than 4 percent.

The Citigroup intervention had been widely expected in some form, but helped turn Asian markets higher .T. European stocks rose nearly 9 percent .EU.

The U.S. government also agreed to shoulder most of Citigroup's potential $306 billion losses on high-risk assets in the biggest bank bailout yet and a measure of the crisis sweeping the world.

Citigroup has the greatest international reach of any U.S. bank, with operations in more than 100 countries. The bank was widely felt to be too big to be allowed to fail.

The bailout plan calls for Citigroup to issue $27 billion of preferred shares to the U.S. Treasury and the Federal Deposit Insurance Corp.

"It's all good stuff but the fact that the Fed has to bail out one of the biggest banks in the world is not exactly a vote of confidence," said Rory Robertson, interest rate strategist at Macquarie in Sydney.

Concerns Europe has entered a deep recession that could last well into next year were reinforced when a key survey of German corporate sentiment hit its lowest level in nearly 16 years in November.

French President Nicolas Sarkozy said after talks with German Chancellor Angela Merkel their "determination to help European industry and notably the automobile industry is total."

The Munich-based Ifo economic research institute said its German business climate index, based on a monthly poll of around 7,000 firms, declined to 85.8 in November from 90.2 in October, the biggest month-on-month drop since the shock following September 11, 2001.

"It seems as if a wildfire is running through the German economy at enormous speed," said Carsten Brzeski, an economist at ING Financial Markets. "If you think the third quarter was bad, just wait for the fourth quarter. It might be a disaster."

ARAB PENINSULA

The crisis has also torn through the Arab Peninsula -- until recently thought immune due to massive sovereign savings and earnings from energy exports -- with almost the same violence as in Europe and North America.

The Gulf emirate of Dubai, home to the world's tallest building and a new luxury mega-resort built on a giant, man-made palm-shaped island, announced it would cap new construction as its years-long building boom turned sour and property values weakened.

The United Arab Emirates began to bail out Dubai's lenders and consolidate its financial sector.

In a major policy shift, the UAE federal government will inject capital into its Emirates Development Bank, a new rescue vehicle preparing to absorb Islamic lenders Amlak AMLK.DU and Tamweel TAML.DU, a leading official said.

A cash injection would represent the first big step by the federal government, dominated by the conservative oil-exporting emirate of Abu Dhabi, to bail out high-flying banks in neighboring Dubai.

HIT THE GROUND RUNNING -- IN JANUARY

Obama, who will take office on January 20, said his proposed appointees would work with the current administration of President George W. Bush to steer the nation's economic strategy.

But he offered no specifics on spending proposals or whether he would delay implementing his campaign promise to rescind tax cuts for high-earning Americans, a move his aides said he was considering.

Instead, Obama said he planned to arrive in the White House with a plan to pull the country's economy out of its slump.

"It is my hope that the new Congress will begin work on an aggressive economic recovery plan when they convene in early January so that our administration can hit the ground running. With our economy in distress we cannot hesitate and we cannot delay," he told a news conference.

Citigroup was not the only bank having to raise more funds.

Asian-focused UK bank Standard Chartered (STAN.L) said it planned a $2.7 billion rights issue to boost its capital reserves, and shareholders of Barclays (BARC.L) backed a $10 billion funding raising.

(Reporting by Reuters bureaus; Editing by Brian Moss, Steve Orlofsky, Gary Hill)