Bernanke says banks ready to act

US Federal Reserve chief Ben Bernanke says that the world's central banks are ready to take further action to ease troubled credit markets.

Speaking at a central bankers' forum in Frankfurt, he warned that financial markets remained under "severe strain".

The Fed cut interest rates last month in co-ordinated move along with other major central banks, including the Bank of England.

His comments raised expectations that US interest rates would be cut further.

'Additional steps'

Mr Bernanke did note "tentative improvements" in credit markets but said that "monetary policy actions have not resolved the ongoing strains in financial markets".

"Policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," he added.

So far there is little evidence that policymakers have been able to avert a severe global downturn.

US retail sales fell sharply in October in the latest sign of weakening economic activity and eurozone economies have official entered a recession, according to official figures released on Friday.

Leaders of the G20 developed and emerging economies are meeting in Washington this weekend to discuss how to contain the financial crisis.

Dow up 494 as Obama prepares to name treasury boss

Dow ends up nearly 500 in surprise comeback after report Geithner will be new Treasury secretary

NEW YORK (AP) -- Wall Street put a stop to a terrifying decline and stormed higher Friday as President-elect Barack Obama appeared ready to tap the chief of the New York Federal Reserve as the next treasury secretary and hand him the herculean task of righting the U.S. financial system. The Dow Jones industrial average, which had broken even for the day until news of the nomination leaked about an hour before the close, raced upward and finished 494 points higher, a rally of more than 6 1/2 percent.The outbreak of buying pushed the Dow above 8,000 -- a figure that would have seemed like a nightmare three months ago but on Friday was a relief for Americans who have watched their investments and retirement savings drain away with alarming speed.

In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor's 500 index had sunk to its lowest level since 1997.

The turnaround came when word reached Wall Street that Obama was likely to nominate New York Fed president Timothy Geithner, 47, for treasury secretary. Geithner would assume top responsibility for tackling what threatens to be the deepest recession in a generation.

Financial markets despise uncertainty, and investors were looking for a clear message from Obama on who will make up his economic brain trust. Wall Street had been voicing increasing frustration with Henry Paulson, the current treasury secretary, over his erratic handling of the federal financial rescue system.

"Something needed to be done on the economy," said Ben Halliburton, chief investment officer at Tradition Capital Management. "The fact that they've got the team together, maybe that is going to shorten the period of indecision."

Elsewhere, the government continued its efforts to shore up the financial system. The Federal Deposit Insurance Corp. also said it would guarantee up to $1.4 trillion in U.S. bank debt for more than three years as part of the government's financial rescue plan.

The decision is aimed at breaking the logjam of bank-to-bank lending. The health of the economy depends on the free flow of credit, and credit markets cinched up again as the market plunged earlier this week.

The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.

The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 9.27 billion shares, up from the 8.96 billion shares that exchanged hands on Thursday. This makes Friday's volume the heaviest since the 11.20 billion seen on Oct. 10.

The Friday afternoon rally managed to prevent the week from being one of the few most dismal in Wall Street history. Corporate mainstays running the gamut from Gap Inc. to Alcoa Inc. and Walt Disney Co. to Microsoft Corp. surged by double-digit amounts.

But it did not erase heavy losses for the week. The Dow finished down about 5 percent for the five days, and other major averages suffered, too -- 8 percent for the S&P 500, nearly 9 percent for the Nasdaq.

The Dow finished at 8,046, and the S&P just a hair over 800.

But the S&P is still down 46 percent so far this year, the most since 1931. And there was still plenty to be concerned about. Citigroup stock took another huge hit -- down 20 percent of what's left of its value, to close at $3.77 -- as pressure built on the bank to sell part or all of itself.

With the economic bad news piling up, President George W. Bush signed an extension of jobless benefits that will make sure millions of laid-off workers keep getting their unemployment checks as the holidays approach. Congress had approved the bill Thursday and rushed it to the president before he took a flight to Peru for an economic summit.

Geithner worked at the Treasury Department for 13 years, leaving in 2001. People close to him say he is motivated by difficult challenges. Justin Rudelson, a friend of Geithner's from Dartmouth College, said he asked Geithner in June whether he was getting enough sleep.

"He said, 'Justin, you have to realize, we live for this. We live for these kinds of crises,'" Rudelson recalled.

While a Geithner appointment could remove the cloud of uncertainty surrounding Obama's economic team has been removed, there are still plenty of unknowns facing the market.

As a result, volatility will remain a major force on Wall Street for some time to come, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He said worries about marquee companies from General Motors to Citigroup are unnerving investors.

"What we're seeing is these symbols of American business history really suffering and prompting investors to call into question the viability of the system," Ablin said, referring to the functioning of the broader economy.

Investors have also worried about the fate of the Detroit Three automakers, which are perilously low on cash and asking Washington for more help. But lawmakers have likely put off a vote on whether to extend a lifeline until next month and have asked the automakers for detailed plans about how they would use the money. The prospect of a bankruptcy filing by one or more of the companies has added to Wall Street's worries about the state of the economy.

Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.20 percent from 3.00 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.04 percent from 0.01 percent late Thursday.

Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average jumped 2.70 percent. In European trading, Britain's FTSE 100 fell 2.43 percent, while Germany's DAX index fell 2.20 percent, and France's CAC-40 fell 3.33 percent.

The Dow Jones industrial average ended the week down down 450.89, or 5.31 percent, at 8,046.42. The Standard & Poor's 500 index finished down 73.26, or 8.39 percent, at 800.03. The Nasdaq composite index ended the week down 132.50, or 8.74 percent, at 1,384.35.

The Russell 2000 index finished the week down 49.98, or 10.95 percent, at 406.54.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,926.05, down 795.83 points, or 9.12 percent, for the week. A year ago, the index was at 14,288.29.

Citigroup plunges on uncertainty

Shares in Citigroup, one of the biggest banks in the US, plunged on Friday amid uncertainty about the firm's future.

The firm's stock rose in early trading but later tumbled to end the day 20% lower at $3.77 as investors awaited the outcome of a meeting of board members.

The Wall Street Journal reported that Citigroup was considering selling parts of the firm. There are also rumours it might merge with another firm.

Earlier in the week the firm announced 52,000 job losses worldwide.

These cuts came on top of previously announced reductions of 23,000 positions.

The total of 75,000 job cuts represent a loss of about 20% of the firm's staff, leaving it with 300,000 jobs worldwide "in the near term".

Raising capital

Chief executive Vikram Pundit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

Shares in the firm have fallen sharply since the start of the year and are trading more than 80% down since January.

Saudi Prince Al-Waleed Bin Talal's decision to buy about $350m (£236m) of its shares on Thursday did not calm investors' nerves.

The firm insisted on Thursday that it had "very strong capital and liquidity position and a unique global franchise".

But Mr Pandit has come under increasing pressure from critics who doubt his ability to turn around the company and survive the financial crisis.

There are fears that Citigroup will not be able to access much-needed funds unless it sells part of the business or combines with another company.

With shares severely down, raising money on the open market is "pretty much off the table" said equity analyst William Fitzpatrick of Optique Capital Management.

Investor confidence

Citigroup has lost more than $20bn in the past year because of the global financial crisis.

The bank has reported four straight quarterly losses and some analysts believe the bank will not return to profitability until 2010.

Investors are worried that further losses could threaten the bank's future.

"Its fear and panic at this point, " said Gerard Cassidy, a banking analyst at RBC Capital.

Despite the sweeping job losses, the bank has maintained that its underlying business "remains strong and revenues have been stable".

But Jason Goldberg, a Barclays Capital analyst said: "We worry if the lack of investor confidence leads to a lack of customer confidence".

Citigroup is one of nine financial institutions receiving funds from the US government's bail-out programme.

Japan's central bank keeps interest rates on hold

Japan's central bank keeps key interest rate unchanged at already low 0.3 percent

TOKYO (AP) -- Japan's central bank kept its already low interest rates on hold Friday but warned of a prolonged economic slump at home and abroad.

The Bank of Japan last month cut its benchmark rate to 0.3 percent from 0.5 percent, so expectations for another rate reduction so soon were low. The October rate cut also left Japan, which has the lowest interest rates among major economies, with very little wiggle room to loosen policy in the future.Describing the economy as "increasingly sluggish," the central bank said it does not expect a recovery anytime soon.

Key economic data this week painted a grim outlook for the world's No. 2 economy, which slipped into a recession in the third quarter. Japanese exports in October suffered their biggest decline in seven years, leading the country to post a rare trade deficit.

Major manufacturers like Toyota Motor Corp. and Isuzu Motor Co., hit by waning global demand, have announced production cuts.

"If financial conditions, as reflected in lending attitudes of financial institutions and issuing conditions in the corporate bond and (commercial paper) markets, should increase in severity, pressures acting to depress economic activity from the financial side may become more marked," the central bank said in a statement.

The Organization for Economic Cooperation and Development says Japan's economy will shrink 0.1 percent next year, compared with a 0.9 percent contraction in the U.S. and a 0.5 percent pullback in Europe.

But most analysts expect the BOJ to stick to the status quo for the time being, especially after recent comments by Bank of Japan Gov. Masaaki Shirakawa suggested reluctance to return to a zero-rate policy.

Further interest rate cuts could cause banks to curtail lending and chill money markets, he said in a speech in Tokyo earlier this month.

The central bank "must consider carefully not only the positive effects of monetary easing, but also the possible adverse effects that might hamper the proper functioning of the market mechanism and impede the flow of funds," Shirakawa said.

Japan's benchmark rate stood at effectively zero from 2001 to 2006 under the central bank's "quantitative easing" policy, through which it flooded the financial system with liquidity to boost lending and growth.

The Bank of Japan said Friday that it would closely monitor economic developments and implement monetary policy "appropriately."

It also pledged to provide ample funds in the money market, particularly over the year-end and fiscal year-end, and carry out purchases of commercial paper under repurchase agreements "more flexibly to facilitate corporate financing."

Eurozone officially in recession

The eurozone has officially slipped into recession after EU figures showed that the economy shrank by 0.2% in the third quarter.

This follows a 0.2% contraction in the 15-nation area in the previous quarter from April to June.

Two quarters of negative growth define a technical recession.

The news was widely anticipated and follows data showing that Germany and Italy, two of the biggest eurozone economies, are already in recession.

BBC Berlin correspondent Steve Rosenberg said the figures were not a surprise. "The Germans had their gloomy economic news [on Thursday] and as Germany is the dynamo of the European economy, when there are problems there, it drags the rest of the region down with it," he said.

It is the first recession the region has seen since the euro's creation in 1999.

But analysts forecast worse to come for the countries that use the euro.

"Looking ahead, we can expect further quarters of negative GDP growth, until the third quarter of 2009, simply because so far we have not had in the GDP figures the full impact of the credit market crisis," said Gilles Moec, senior economist, Bank of America."We also haven't yet seen the full impact of unemployment on consumer spending," he added, forecasting that the eurozone region will shrink by 1% next year.

European blues

The gloomy forecasts are being fuelled by the uncertainty relating to the financial panic and slowing exports exacerbated by the strengthening euro against the dollar and pound. Carmakers - major European employers - are suffering particularly badly with data from the European carmakers' association, Acea, showing car sales down 14.5% in October for the sixth month in a row.

The sharp decline in exports has winded Germany - one of the world's largest economies - with data out on Thursday showing it had shrunk 0.5% in the third quarter, following a 0.4% drop in the second quarter.

The Italian and Spanish economies followed suit, also shrinking in the third quarter. For Spain, it was the first such drop since 1993.

Analysts are now convinced that a slump in household spending and a property crisis are likely to push the Spanish economy into recession as well, in the next quarter.

Much to the surprise of most analysts, France's economy bucked the trend and expanded in the third quarter, supported by consumer spending and company investment.

Official data showed that the French economy grew by 0.1% in the June to September period. More interest rate cuts?The European Central Bank this month lowered its key interest rate to 3.25% to kick-start the eurozone's flagging economy and more cuts are expected as it becomes clearer that inflation risks are now retreating.

The Eurostat statistics agency said that annual inflation had come down to 3.2% in October from 3.6% in September, as oilprices have more than halved since reaching a peak above $147 a barrel in July.

Some analysts are predicting they could go as low as 2% - the same level they stood when the eurozone was formed in 1999.

Meanwhile, the wider European Union (EU), made up of 27 countries, is also in danger of slipping into a recession with the region's output shrinking by 0.2% in the third quarter, after flat growth in theprevious three months.
The UK is expected to join the roll-call of European countries in recession with a bleak Bank of England forecast earlier this week suggesting that Britain is already there.

Despite a week's worth of grim data, European stock markets rose.

The UK's FTSE 100 climbed as much as 3.6% before paring earlier gains to close up 1.5% at 4,233 while the German Dax and the French Cac also posted modest gains.

The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

Most Asian markets rebound after Wall Street rout

Most Asian markets rebound after Wall Street rout; Hang Seng jumps 3.8 percent

BANGKOK, Thailand (AP) -- Most Asian markets rebounded Friday after days of sharp declines in stocks around the world as investors scooped up battered financial and technology shares.

Major regional benchmarks opened lower after Wall Street touched multiyear lows overnight but climbed into positive territory by midday. Oil prices, which had fallen below $49 a barrel to three-year lows in early Asian trading, also bounced back.
But with signs of recession spreading around the globe, the outlook remains grim, analysts said.

"After tanking for so many days there will always be a belief that you just can't draw a straight line down. There may be a day or a day and a half of respite," said Song Seng Wun, head of research at CIMB Securities in Singapore.

"But there is still a lot of uncertainty. If there was some announcement of help for the U.S. auto industry that might buy us some time but the strategy still seems to be to sell into any strength," he said.

Japan's Nikkei 225 stock average rose 207.75 points, or 2.7 percent, to 7,910.79 and Hong Kong's Hang Seng index jumped 465 points, or 3.8 percent, to 12,763.81.

South Korea's Kospi surged 5.8 percent and Australia's market advanced 1.9 percent.

On the down side, mainland China's Shanghai Composite index slipped 0.7 percent and markets in the Philippines and Indonesia also declined.

U.S. stock index futures were higher, suggesting Wall Street would bounce back after a crushing two-day 10.6 percent plunge in the Dow Jones industrial average, its worst two-day percentage loss since October 1987.

Wall Street on Thursday suffered another late-session rout as hopes faded that lawmakers would quickly assemble an aid package for U.S. automakers. Stocks were also battered by worries the $700 billion bailout won't be big enough and oil plunging to a three-year low on expectations of a global economic recession.

The S&P 500 index fell 6.7 percent to its lowest close since April 1997. The Dow, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003.

Dow futures were up 199 points, or 2.7 percent, to 7,686, while S&P 500 futures were up 18.7 points, or 2.5 percent, to 767.

In Asian trading, light, sweet oil for January delivery edged up 61 cents to $50.03 a barrel on the New York Mercantile Exchange after earlier falling as low as $48.25, the lowest since May 2005.

Financial, real estate and technology stocks led the recovery in Asia.

In Hong Kong, HSBC Holdings PCL jumped 4.5 percent, China Construction Bank Corp. was up 6.7 percent, and developer Cheung Kong jumped 5.8 percent. Japan's top bank, Mitsubishi UFJ Finance, rose 2.1 percent.

In Seoul, Samsung Electronic rose 4 percent, while Taiwan's Semiconductor Manufacturing Company Ltd., the world's largest contract chip-maker, gained 4.6 percent.

"There's a little bit of strength coming back into beaten-down stocks," said Andrew Yates, vice president of foreign institutional sales at Asia Plus Securities in Bangkok. "But the volumes are not great so it's difficult to call a bottom particularly with the macro picture being so weak."

Oil falls below $53 on fears of deep recession

Oil falls below $53 in Asia as investors fear worst global economic slowdown in decades

SINGAPORE (AP) -- Oil prices fell below $53 to almost a two-year low Thursday in Asia as investors, egged on by plummeting stock markets, priced in lower crude demand from a global economic downturn that's shaping up as the worst in decades.
Light, sweet crude for December delivery was down 81 cents to $52.81 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract Wednesday fell 77 cents to settle at $53.62, the lowest since January 2007.

"People are saying this slowdown could be the worst since the Great Depression," said Toby Hassall, an analyst with Commodity Warrants Australia in Sydney. "There's definitely fear out there that it's going to be pretty severe."

Concerns that Congress may not approve a $25 billion rescue package for ailing U.S. carmakers General Motors Corp., Ford Motor Co., and Chrysler LLC helped drag the Dow Jones industrial average down 5.1 percent Wednesday to its lowest level since March 2003.

Asian stocks opened down Thursday with Japan's benchmark Nikkei index falling 4.7 percent, Hong Kong's Hang Seng index off 5.1 percent and the Korea Composite Stock Price Index sliding 5.4 percent

"The stock markets are representing investor pessimism regarding the economic outlook and what we have in store over the next year," Hassall said. "I think we're going to see oil test $50 sooner rather than later."

On Wednesday, the U.S. Department of Transportation provided more evidence that the slowdown continues to hurt gasoline consumption, even as prices fall. Americans drove almost 11 billion fewer miles in September, the department said.

A production cut by OPEC may keep prices from falling further. The Organization of Petroleum Exporting Countries is holding an informal meeting later this month ahead of an official meeting in December. OPEC President Chakib Khelil has signaled the group may announce production cuts at the December meeting, but some members, such as Iran, have called for earlier cuts.

"It's gonna take a pretty big supply side response from OPEC at their next meeting to provide some support," Hassall said. "The focus of the market is definitely on the demand side."

Investors have been brushing off news that earlier in the year would have sent prices higher. Chevron Corp. invoked "force majeure" Tuesday on 90,000 barrels a day of Nigerian production after a pipeline was breached by militants in the Niger Delta. Earlier this week, Somali pirates hijacked a Saudi supertanker carrying $100 million in crude.

In other Nymex trading, gasoline futures fell 1.35 cents to $1.09 a gallon. Heating oil gained 0.28 cent to $1.76 a gallon while natural gas for December delivery was steady at $6.74 per 1,000 cubic feet.