U.S. home prices, German morale wilt

By Burton Frierson and Ross Finley

NEW YORK/LONDON (Reuters) - The global economy extended its grim run on Tuesday, as U.S. house prices posted a record plunge and German business confidence hit its lowest since reunification, while President Barack Obama prepared to explain his plan for getting out of the current rut.

Adding to the gloom, U.S. consumer confidence plunged to another record low in February with expectations that already dire economic conditions will continue to weaken and the jobs market will further deteriorate.

"Confidence is deeply, deeply mired in recessionary territory, resulting in big declines in real consumer spending," said Steven Wood, chief economist at Insight Economics in Danville, California.

The weakest German business confidence since 1990 followed overnight reports that American insurer AIG (AIG.N) could make the biggest quarterly loss in corporate history.

U.S. Federal Reserve Chairman Ben Bernanke said the world's largest economy was in a "severe contraction" and warned that unless government efforts succeed in restoring financial stability, the nation's recession may not end this year.

More than two years after the U.S. property bubble began to implode, prices of U.S. single-family homes plunged 18.5 percent in December from a year earlier, the latest in a series of record declines, according to a Standard & Poor's/Case-Shiller home price index.

On Wall Street, shares actually managed to rebound after falling to 12-year lows a day earlier.

Monday's rout on Wall Street had come even as Washington vowed to prop up ailing banks. Sources familiar with the matter said the U.S. government was discussing taking a bigger stake in shrinking financial giant Citigroup (C.N), and injecting more cash into AIG.

As the global financial crisis plumbs new depths, AIG is asking for a third round of government aid and bracing for a fourth-quarter loss of about $60 billion, one of the sources said, more than double its $24.5 billion third-quarter loss.

American International Group said in a statement it had not yet reported results and would provide an update when it does so in the near future.

But riding high in opinion polls, Obama will deliver a State of the Union-style address at 9 p.m. EST (0200 GMT on Wednesday) in his first appearance before a joint session of Congress since he took office five weeks ago.

CRISIS OF CONFIDENCE

The Conference Board, an industry group, said its U.S. consumer sentiment index fell to 25.0 from a downwardly revised 37.4 in January. The February reading was a new all time low for the index, which began in 1967.

News that the key Ifo index of German business sentiment unexpectedly slipped in February to the lowest level since reunification in 1990 dented optimism that the economy there had reached a bottom.

The Reuters consensus had been for no change in the Ifo business climate index, but it fell to 82.6 in February from 83.0 in January. The expectations index rose slightly to 80.9 from 79.5, still looking for a glimmer of light ahead.