China slashes rates, EU plots stimulus
NEW YORK (Reuters) - China cut interest rates by the biggest margin in 11 years, the European Union plotted a 200 billion euro stimulus plan and U.S. President-elect Barack Obama added a former Fed chief to his team in the latest moves aimed at jolting the world out of its economic slowdown.
New U.S. government data on Wednesday underscored the severity of the downturn. Consumer spending fell at the steepest rate in more than seven years in October, durable goods orders tumbled at twice the rate economists expected and sales of newly built U.S. single-family homes dropped sharply.
U.S. consumer confidence declined to a 28-year low in November, a Reuters/University of Michigan survey found. A measure of future U.S. economic growth fell to its lowest in more than 13 years and the annualized growth rate hit a new low, indicating the economy has yet to reach a bottom.
Obama, who will take office on January 20, named Paul Volcker, a Federal Reserve chairman in the early 1980s, to head a panel created to give the new president "fresh perspective" on the financial crisis in addition to Cabinet members and other advisers he has introduced over the last three days.
"It has become increasingly clear in recent months that we are facing an economic crisis of historic proportions," Obama told reporters. "We are called to seek fresh thinking and bold new ideas from the leading minds across America."
On Wall Street, the Dow Jones industrials index had its first three-day gain since August. European stocks had ended slightly lower and Japan's Nikkei average shed 1.3 percent.
The dollar rose versus the euro and bonds rose sharply. Oil jumped more than 7 percent, above $54 a barrel.
The Baltic Exchange's chief sea freight index for dry commodities trade fell to a 22-year low on Wednesday, weighed down by a collapse in demand and trade credit issues, industry sources said.
The London-based index tracks prices to ship resources like iron ore, coal, grains and cement on top export routes.
CHINA, EU TAKE ACTION
China, which has had years of blistering growth, cut its banks' benchmark lending and deposit rates by 108 basis points, a day after the World Bank said the country's growth next year would be around 7.5 percent, the slowest rate since 1990.
The People's Bank of China (PBOC) also reduced reserve requirements by 1 percentage point for big banks and by 2 percentage points for smaller banks.
"It's certainly a lot more aggressive than anything they've done recently. I think it speaks volumes about just how much China has slowed down," said Anthony Muh of AT Asset Management in Hong Kong.
The European Commission approved a package it hopes will be taken up by EU member states, aimed at giving the sagging European economy a sharp, temporary boost with a 200 billion euro ($260 billion) spending plan across the bloc, an EU source said.
The plan, bigger than initially thought, calls for a fiscal stimulus of 1.5 percent of EU gross domestic product. National measures would account for around 170 billion euros, or 1.2 percent of GDP, and EU and European Investment Bank budgets, around 30 billion euros.
The Commission wants the EU's 27 countries to unite on a two-year growth campaign even if it means missing national deficit targets. Leaders from the bloc will study the plan at a December 11-12 summit.
Germany and Britain have already launched stimulus programs, and France is poised to. Berlin said it assumed its existing plan would be enough.
In Britain, credit card companies have agreed to give "breathing space" to consumers struggling to pay off their debts. Government ministers had urged the companies to provide relief to their customers.
A day earlier, U.S. officials had announced $800 billion in programs to boost consumer and small business lending.
In Cairo, European Central Bank President Jean-Claude Trichet said the bank could cut interest rates next week as long as there was evidence inflation pressures have eased.
There is. German inflation likely slowed for a fourth month running in November as fuel costs fell, pointing to easing price pressures in the broader euro zone, state data showed.
Trichet's comments were the latest in a series of comments from central bankers that have led to widespread expectations of easier monetary policy ahead.
U.S. financial dealers continued to lean toward a big Federal Reserve rate cut in December after the dismal durable goods report, with short-term interest futures fully pricing a 50 basis point rate cut to .50 percent.
WORLD IS STUMBLING
As the global crisis derails mergers, forces firms into bankruptcy and produces a slew of grim economic data on both sides of the Atlantic, company news reinforced the view that the global economy was stumbling badly.
In Japan, Toyota Motor Corp had its top-notch credit rating cut for the first time in a decade.
In the United States, upscale jeweler Tiffany & Co and farm equipment maker Deere & Co scaled back their earnings forecasts.
"It is impossible to know when consumer confidence will be restored," Tiffany CEO Michael Kowalski said.
Toyota's long-term foreign and local debt ratings were downgraded to AA from AAA, with a negative outlook, by Fitch Ratings.
"The negative developments in the industry are so substantial and fundamental that even the strongest player -- Toyota -- can no longer support an 'AAA' rating," said Fitch Director Tatsuya Mizuno.
But there was some hope for U.S. automakers as shares of General Motors Corp and Ford Motor Co jumped after Deutsche Bank said chances have improved for Detroit car companies to receive a government bailout.
(Reporting by Reuters bureaus worldwide; Writing by Brian Moss and Bernard Orr; Editing by Eddie Evans, Gary Hill)
