Bush to seek last TARP funds

By Herbert Lash and Mike Peacock

NEW YORK/LONDON (Reuters) - President George W. Bush agreed on Monday to seek the remaining half of $700 billion in aid for the beleaguered financial industry as a potential breakup of U.S. banking powerhouse Citigroup marked renewed upheaval in the global banking system.

President-elect Barack Obama asked Bush to seek the remaining $350 billion in U.S. bailout funds. Congress has 15 days to consider the disbursement after the president tells lawmakers he intends to tap the funds.

The initiative is the latest measure by leaders worldwide who face mounting job losses as growth slows sharply. The major economies are expected to shrink this year but should recover in 2010, the world's top central bankers said at a meeting in Basel, Switzerland.

"The global economy will slow down significantly in 2009 with the industrialized economies having negative figures," said European Central Bank President Jean-Claude Trichet, who chaired talks among 10 central bankers on the world economy.

U.S. stocks fell as investors worried that the start of reporting fourth-quarter earnings, marked by Alcoa after markets close on Monday, may indicate a worsening recession. Shares of Alcoa, a Dow component, were down almost 7 percent.

The toll on government finances came to the fore after Standard & Poors warned Spain it could cut its sovereign debt rating as the global slowdown abruptly ended 14 straight years of growth and sent public finances spinning into deficit.

White House spokeswoman Dana Perino said in a statement that Obama asked Bush to seek the remaining $350 billion in the Troubled Asset Relief Program, or TARP.

But Obama's fellow Democrats, who control both houses in Congress, have expressed reservations about releasing the money unless stricter limits and protections are placed on how the aid is used.

Obama will seek greater transparency in the use of bailout funds and to ensure the money flows to smaller banks and businesses, incoming Economic Council director Lawrence Summers said in a letter to lawmakers.

Citigroup moved to join its Smith Barney unit with Morgan Stanley's brokerage operation to form the largest retail brokerage, people familiar with the matter said. It would mark the boldest step in dismantling what was the world's biggest financial services conglomerate.

Britain found itself with another stake in a top bank after investors in Lloyds TSB and its takeover target HBOS shunned a pair of rights issues. The government was left to supply almost all of the 17 billion pounds ($25.6 billion) they need to rebuild capital.

Citigroup shares fell more than 12 percent to their lowest since markets cratered to decade lows in late November after a report that said the bank might post a quarterly operating loss of at least $10 billion.

In a case linked to the credit crisis, a U.S. judge ruled that accused Wall Street swindler Bernard Madoff, who has become one of the most vilified figures in America, could stay in his Manhattan apartment under house arrest.

The outlook for major industrialized and emerging economies worsened markedly in November and points to a "deep slowdown" in those states, data from the Organization for Economic Cooperation and Development in Paris showed.

The OECD's leading indicator for the Group of Seven big industrial nations fell, pointing to "deep slowdowns in the major seven economies and in major non-OECD member economies, particularly China, India and Russia."