U.S. nears car rescue as China, Europe mull stimulus

By Daniel Trotta

NEW YORK (Reuters) - Progress toward a U.S. auto bailout and hopes for massive public works injected life into equity markets on Monday despite distress signals including new corporate job cuts and a pillar of American media filing for bankruptcy.

Chinese and European leaders plotted their next steps as investors looked to governments to lead major economies out of recession because central banks could start running out of room to cut interest rates further.

U.S. President-elect Barack Obama provided some hope with a weekend pledge to create more than 2.5 million new jobs by 2011 and launch the largest investment in U.S. infrastructure since the 1950s.

"Obama looks like he's going to be able to fast-track one of the largest infrastructure spending packages since the history of mankind," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Negotiators for outgoing President George W. Bush, who hands over power to Obama on January 20, and Congressional Democrats edged toward agreement on a $15 billion auto sector rescue plan after three days of talks.

U.S. Rep. Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the remaining disagreements could be resolved in a few hours.

A draft Democratic plan obtained by Reuters called for the appointment of at least one car czar to oversee the rescue plan and it set terms for a 7-year loan.

European carmakers focused on consolidation, with Italy's Fiat saying it is too small to survive on its own and Sweden reportedly considering a rescue package for Ford-owned Volvo and General Motors-owned Saab.

The U.S. talks gained urgency after Friday's U.S. employment data showed more than half a million jobs were lost in November.

Dow Chemical Co said on Monday it will cut 5,000 jobs, divest businesses and close plants less than a week after U.S. rival DuPont announced its own cutbacks.

The corporate world was also rocked when the Tribune Co -- the privately held publisher of the Chicago Tribune and Los Angeles Times -- filed for Chapter 11 bankruptcy protection, exposing unsecured creditors including subsidiaries of J.P. Morgan Chase and Merrill Lynch.

PRICE IS RIGHT?

With the Dow industrials down more than 30 percent this year, some investors were choosing the present to begin a long-term equities strategy.

The Dow gained 3.5 percent on Monday, briefly trading above 9,000 points, and the S&P 500 closed 3.8 percent higher. European shares gained 6.9 percent and Japan's Nikkei 225, 5.2 percent.

One of the largest U.S. money managers on Monday said U.S. stocks have broken their downtrend and will trade in a narrow range for as long as four months.