By Mike Peacock
LONDON, Nov 11 (Reuters) - Weak economic readings from China, Japan and
Britain and a grim corporate outlook worldwide reinforced fears on Tuesday of a
prolonged recession, prompting investors to look to a world leaders' summit for
solutions.
Chinese import growth slowed in October and inflation fell to a 17-month
low as domestic demand cooled, making it likely Beijing will cut interest rates
soon to back up the government's new economic stimulus plan.
"The increasing risk of deflation will make the central bank more
aggressive in loosening monetary policy," said Hu Yuexiao, an analyst with
Shanghai Securities.
In Japan, exports fell nearly 10 percent in the first 20 days of October,
corporate bankruptcies jumped 13.4 percent year-on-year and sentiment in its
service sector hit an all-time low, all signs the world's second biggest economy
was teetering on the brink of recession.
German analyst and investor sentiment about the outlook for Europe's
largest economy improved this month but remained gloomy with the nation probably
already in recession.
The ZEW survey, which measures the ratio of optimists to pessimists, rose
but still read -53.5, reflecting a large preponderance of the latter.
British retail sales fell by the biggest amount in more than three years
last month, and a housing industry survey showed home sales slumped to their
lowest level in at least 30 years.
"These are seriously poor numbers, especially in the run-up to
Christmas," Stephen Robertson, director general of the British Retail
Consortium, said of the sales data.
The worst financial crisis in 80 years, prompted by huge banking losses
in the U.S. housing market, has fostered a broad economic downturn, with even
fast-growing China proving not to be immune.
BROWN DEMANDS SUMMIT ACTION
The credit crunch has seen banks clam up on lending to each other,
businesses and households for over a year now.
Investors are looking to a summit of world leaders in Washington on
Saturday for new solutions, following moves worldwide to cut interest rates,
kickstart money markets and recapitalise banks, at a cost of more than $4
trillion.
"We need monetary and fiscal policy coordination across the world ... a
broad, concerted economic response is now urgent," British Prime Minister Gordon
Brown told a news conference. "The second priority is that we agree a timetable
for measures that will clean up the failings in our banking system."
But officials are downplaying the likelihood of dramatic measures and
aides to U.S. President-elect Barack Obama -- who world leaders have urged to
make the credit crisis his number one priority -- said he would not attend the
Nov. 15 summit.
Many in Europe want a root-and-branch reform of financial regulation but
U.S. officials have sounded more reluctant.
"Major reactions in the market may be delayed until after the outcome of
the G20 meeting at the weekend," said Hideki Amikura, deputy general manager of
the forex section at Nomura Trust Bank.
Obama is expected to spend hundreds of billions of dollars in a fiscal
stimulus package, once he takes power in January.
Separately, the regulator for Fannie Mae and Freddie Mac, which guarantee
nearly half of all U.S. residential mortgages, will announce on Tuesday new
steps to mitigate home loan foreclosures, according to sources familiar with the
plans.
CORPORATE PAIN
Inevitably, companies are not escaping unscathed.
Vodafone, the world's largest mobile phone company by revenues, cut its
full-year revenue outlook for the second time in four months but said it would
maintain profits by cutting 1 billion pounds ($1.58 billion) of costs.
Samsung Securities Co, South Korea's biggest brokerage, reported a 69
percent fall in quarterly net profit on the back of falling financial markets.
The world's largest hotelier, InterContinental Hotels , posted a 14
percent rise in third-quarter profits but said it saw a sharp deterioration in
October market conditions.
Japan's Nikkei share index dropped 3 percent, European stocks shed 2.3
percent and U.S. stock futures pointed to a weaker start on Wall Street in
response to the worsening corporate outlook.
Monday's optimism, sparked by China's nearly $600 billion stimulus
package, quickly evaporated.
"Worrying corporate news from the U.S. plus suggestions that the
recession will be longer and deeper than previously thought are adding to the
downside," Matt Buckland, dealer at CMC Markets, wrote in a note.
Deutsche Bank said the equity value of General Motors was now zero,
sending its stock to a 62-year low, and analysts said Goldman Sachs could post
its first quarterly loss.
U.S. electronics seller Circuit City filed for bankruptcy -- the biggest
retailer to do so since Kmart in 2002 -- and coffee chain Starbucks reported
disappointing earnings.
(editing by Elizabeth Piper) ($1=.6334 Pound) Keywords: FINANCIAL/
(email: mike.peacock@thomsonreuters.com; Reuters Messaging:
mike.peacock.reuters.com@reuters.net: +44 207 542 3784)
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