U.S., European data grim

By Matt Daily

NEW YORK (Reuters) - Dismal economic data from the United States and Europe pointed to further pain for the world's two largest economies, while aluminum maker Alcoa Inc plans to slash thousands of jobs and curtail operations to conserve cash in a deepening recession.

Toyota Motor Corp said it would shut all of its Japanese production for 11 days and petrochemical group LyondellBasell's U.S. operations filed for bankruptcy, adding to the steady flow of bad news.

The financial turmoil that has worsened in recent months also prompted German billionaire Adolf Merckle to commit suicide, his family said, as that nation's fifth richest man sank into despair over huge losses suffered by his companies.

Despite weak figures for U.S. housing, factory and service segments, U.S. stocks managed a modest gain, as did European and Asian stocks earlier in the day.

The sagging U.S. housing market, which prompted the implosion of the financial system and brought down the nation's economy, showed further weakness, with pending sales of existing homes in November dropping to their lowest level in at least seven years.

The U.S. service sector, which represents about 80 percent of the its overall economic activity, shrank for a third consecutive month in December, according to the Institute for Supply Management, although the decline was less than expected.

U.S. data released on Tuesday also showed new factory orders plunged 4.6 percent in November, far steeper than the 2.5 percent decline analysts predicted.

"We are in the throes of the worst recession since the early 1980s," said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley. "Factory orders are getting hit again. The economy is really not receiving any support from any cylinders of the engine."

EUROPE WEAKENS

In Europe, a sharper-than-expected fall in euro zone inflation to a 26-month low of 1.6 percent in December knocked back the euro and further supported expectations for a European Central Bank (ECB) rate cut next week.

ECB rate-cut expectations were also boosted by data showing the euro zone private sector services economy shrank sharply in December and firms cut more jobs than expected, pointing to a deep recession lasting well into 2009.

The Markit Eurozone Purchasing Managers' Index of about 2,000 services companies, from banks to retailers, fell to 42.1 in December from 42.5 a month ago, a new low in the survey's 10-year history.

"Sharply contracting new orders, backlogs of work and employment reinforce the belief that the euro zone faces an extremely difficult start to 2009," said Howard Archer, an economist at IHS Global Insight.

STIMULUS PLANS

But global stock markets rose, with European and Asian shares posting gains for the sixth- and seventh-straight sessions, respectively. The dollar climbed as investors anticipated an economic stimulus package of up to 50 billion euros ($67.4 billion) in Germany and an expected $775 billion proposal from U.S. President-elect Barack Obama.