WASHINGTON (Reuters) - Bleak outlooks from world carmakers and more news of big job cuts at major companies on Thursday deepened fears in corporate boardrooms and trading floors around the world of an extended global recession.
Asian shares tumbled, hit by weaker-than-expected Japanese export data, European stocks closed slightly lower as losses in banks and automobiles eclipsed gains in oil and defensive shares, and emerging markets were pounded again.
But after hitting a five-year low on Wednesday, U.S. stocks rebounded, with a bounce in energy and health-care stocks leading the Dow Jones Industrial Average .DJI> to a gain of more than 2 percent and the S&P 500 .SPX> up more than 1 percent, although the Nasdaq was off 0.73 percent.
The interbank cost of borrowing longer-dated dollars rose for the first time since governments detailed a raft of bank bailout measures, hurt by recession fears.
Former U.S. Federal Reserve Chairman Alan Greenspan told Congress he was “shocked” at the U.S. credit market breakdown and said he sees a jump in unemployment ahead. He also said he was “partially” wrong to resist regulation of some securities.
Despite past concerns that risks were being underestimated, “this crisis, however, has turned out to be much broader than anything I could have imagined,” he testified to Congress.
Federal Deposit Insurance Corp Chairman Sheila Bair, a top U.S. banking regulator, said regulators were working with the Bush administration to create a loan guarantee program to ease pressure on homeowners.
She said the government must do more to guarantee mortgage loans to persuade lenders to modify their terms and help ward off foreclosures.
Central banks around the world tried to shield economies from the worst financial crisis since the Great Depression.
Sweden, which joined the U.S. Federal Reserve and others in coordinated cuts two weeks ago, lowered its key interest rate 1/2 percentage point and signaled more to come.
New Zealand cut rates by a record one percentage point and hinted at more reductions, and Bank of England Governor Mervyn King said Britain, too, was ready to lower interest rates again.
The central banks of Brazil, Turkey and Norway acted to boost liquidity, and Canada said the government would guarantee borrowing from banks as its central bank warned it expects the country’s economy to be pushed to the edge of a recession.
The International Monetary Fund was hurrying to approve by early November a package that would let some “top-tier” emerging market economies exchange local currencies for dollars to ease strains, officials familiar with the plan said.
So far, Hungary, Iceland, Belarus, Ukraine, Serbia and Pakistan are in talks with the IMF on economic programs, backed by financing. But the IMF denied market speculation it is preparing a $1 trillion aid package.
U.S. workers lined up in unexpectedly large numbers last week to file new claims for jobless benefits and, in another bad sign, JPMorgan Chase & Co. said U.S. commercial real estate values may drop up to 30 percent from their peaks as financing options are pinched by the credit crunch and lenders demand higher returns.
Drug makers provided some relief in an otherwise dismal earnings season, as Amgen Inc, Bristol-Myers Squibb and Eli Lilly & Co. posted better-than-expected results and relatively positive outlooks.
Software giant Microsoft Corp. reported a stronger-than-expected quarterly profit and reduced its outlook less than many investors had feared. It was among a diverse group of technology companies whose results pleased investors.
But most major corporations continued a bleak parade of disappointing results, layoffs and negative outlooks, hurt by the effects of the crisis set off by a U.S. housing market collapse 15 months ago, even as credit flows have thawed somewhat and banks have begun lending to each other again.
Carmaker General Motors said it is planning involuntary cuts in its workforce starting this year, and was temporarily suspending the company match for its retirement savings program to preserve cash. Chrysler LLC said it had plans to cut 1,825 jobs.
New York-based bank Goldman Sachs Group Inc plans to cut nearly 3,300 jobs, or around 10 percent of its staff, sources familiar with the matter said.
Among U.S. companies posting lower profits were Dow Chemical, Xerox and Starwood Hotels. Xerox and Starwood also said they would be cutting jobs.
“We will likely see a global recession through most of 2009,” Dow Chairman and CEO Andrew Liveris said.
Japanese exports grew only 1.5 percent in September from a year earlier, well short of forecasts, prompting worries that the world’s second-biggest economy is heading into recession and renewing speculation about a rate cut.
Sony Corp slashed its operating profit forecast, citing reduced demand for flat TVs and digital cameras.
Italy’s Fiat, Germany’s Daimler and South Korea’s Hyundai Motor Co added to the automaker gloom with bleak 2009 forecasts.
The dollar hit two-year highs against the euro and other currencies, but later fell after aggressive dollar selling by the Brazilian central bank helped lend some stability to emerging market currencies, analysts said. The low-yielding yen reached a six-year high against the euro.
“The Brazilian central bank intervened materially and bought reals against the dollar ... that seems to have calmed the price action, not only in the G10, but global currencies as well,” said Dustin Reid, head of FX strategy at RBS Global Banking & Markets in Chicago.
Asian stocks hit a four-year low and the FTSEurofirst 300 .FTEU3> index cut earlier losses and ended down 0.5 percent.
Emerging stocks continued recent sharp falls, debt spreads gaped, Russia’s credit default swaps moved into distressed territory and the Turkish lira tumbled again.
Led by energy and health-care stocks, the Dow rose 172.04 points, or 2.02 percent, to end at 8,691.25. The S&P gained 11.33 points, or 1.26 percent, to finish at 908.11.
The Nasdaq Composite Index was down 11.84 points, or 0.73 percent, to close at 1.603.91.
Reporting by Reuters bureaus worldwide; Editing by Leslie Adler