U.S., Germany mull tax cuts

By Matt Daily

NEW YORK (Reuters) - The prospect of new tax cuts in the United States and Germany injected a measure of New Year cheer on Monday, even as automakers wrapped up 2008 as their worst in more than 15 years with yet another month of slumping U.S. sales.

Automakers continue to suffer from weak U.S. demand, with General Motors Corp, Ford Motor Co and Toyota all reporting December sales declines of more than 30 percent.

Asian stocks climbed to a two-month high on optimism that massive government spending programs will revive global growth, and European shares also advanced, though U.S. stocks gave back part of the strong gains racked up last week.

In a move that could help speed approval of a new stimulus plan in the United States, U.S. President-elect Barack Obama will seek as much as $310 billion in tax cuts as part of a move to counter what senior policymakers warned could be a prolonged period of economic stagnation and deflation.

Still, one top Democratic senator said enactment would not likely come until February despite congressional Democrats' hopes to present the incoming president with a stimulus measure to sign in the early days of his term.

In Germany, Chancellor Angela Merkel met her Social Democrat (SPD) coalition partners to discuss a second fiscal stimulus deal worth up to 50 billion euros. That would come on top of a 31 billion euro package last year that Merkel's critics -- including some European Union allies -- believe was too small to haul Europe's leading economy out of recession.

Merkel on Sunday came out in favor of tax relief moves she had previously ruled out until after September's federal election. But she faced tough talks to get the SPD to agree.

"It will be very difficult to get a common denominator on tax," Andrea Nahles, SPD deputy leader, told German radio. No firm decisions were expected on Monday, but a government spokesman said talks would prepare the groundwork for a January 12 deal.

The stimulus plans by the world's No. 1 and No. 3 economies mark the latest attempts to tackle a financial crisis that began with U.S. mortgage defaults in 2007 and snowballed into global market turmoil that threatens much of the world with a deep recession.

Along the way, the crisis has reshaped the banking landscape and pushed countries to the brink of bankruptcy.

U.S. CAR WOES

Chrysler LLC led the industry lower with U.S. sales that dropped by 53 percent in December, a month when the struggling automaker and larger rival GM fought to clinch a $17.4-billion bailout from the U.S. government.

Toyota Motor Corp, the world's largest automaker, posted a sales drop of 37 percent, followed by Honda Motor Co at 35 percent and Ford Motor Co at 32 percent. GM and Nissan Motor Co saw sales drop 31 percent.

That followed December auto sales figures from Japan and France, which posted steep falls of 22 percent and 15.8 percent, respectively, adding to a swathe of grim data from an industry bearing the brunt of wrecked consumer confidence.

Meanwhile overseas, data published on Monday increased the pressure on the ECB to keep cutting interest rates. Spanish inflation in December was the lowest in a decade, at 1.5 percent, while Italian inflation fell to a 14-month low of 2.3 percent.