Economic woes hit fast-growth China, world carmakers

By Mary Milliken

NEW YORK (Reuters) - The global economic downturn sparked a warning of sharply lower growth in the giant Chinese economy, a large drop in oil prices and setbacks for the auto industry worldwide as Washington grapples with a rescue for crippled automakers.

The International Monetary Fund said on Monday Chinese growth could be cut almost in half next year, while Japan reported its sharpest crash in business sentiment in three decades. Japanese automaker Toyota Motor Corp said it is suspending completion of its newest plant in Mississippi indefinitely in response to a "steep decline" in U.S. auto sales.

It was a sour start to what promises to be a big news week for investors around the world. On Tuesday, the U.S. Federal Reserve is expected to cut rates to close to zero, Goldman Sachs could report its first quarterly loss as a publicly traded company and the CEO of corporate bellwether General Electric, Jeff Immelt, briefs Wall Street on the company's 2009 outlook.

The energy market awaits news that OPEC will make its deepest cut ever in production at a meeting this week in Algeria.

But benchmark U.S. crude fell 4 percent as the deepening economic worries more than offset the prospect of an OPEC cutback lifting prices.

Meanwhile, there was more bad news for banks around the world as several acknowledged exposure to the alleged $50 billion Wall Street fraud by Bernard Madoff, including Britain's HSBC Holdings Plc, Royal Bank of Scotland and Man Group, Japan's Nomura Holdings and France's Natixis SA.

No major U.S. banks have said they were exposed, but the Madoff scandal did take a toll on U.S. stocks along with worries about bank profits.

The grim economic news had investors scrambling out of stocks into safe-haven Treasury debt, sending the long bond's yield down to an all-time low below 3 percent.

BLEAK CONSUMER CHRISTMAS

Less than two weeks before Christmas, bad news on U.S. consumers continued to trickle in. While sales for the key holiday might not drop as much as retailers feared, experts say households are likely to cut back even more after Christmas.

Bucking the dour trend was U.S. industrial production in November, which slipped by a less-than-expected 0.6 percent, and revised figures for October that were stronger than previously thought.

On the housing front, U.S. home builder sentiment held steady in December, but remained at a record low, reflecting the economic turmoil and heavy job losses.

U.S. government-controlled mortgage finance company Fannie Mae gave some relief on Monday by allowing tenants whose landlords go into foreclosure to remain in their homes and avoid eviction.

U.S. House of Representatives Speaker Nancy Pelosi said congressional Democrats will demand more aggressive steps by the White House to reduce home foreclosures before Congress agrees to release more money for a $700-billion bank bailout.

Pelosi also said a pending economic stimulus package could cost around $600 billion and include large infrastructure investments and tax cuts.