7 Jan 2009

Bad tidings flow across world economies

2:45 pm on 7 January 2009

Dismal economic data from the United States and Europe on Tuesday point to further pain for the world's two largest economies, adding to a steady flow of bad news.

Aluminum maker Alcoa Inc is planning to slash thousands of jobs and curtail operations to conserve cash and Toyota Motor Corp says it will shut all of its Japanese production for 11 days. Petrochemical group LyondellBasell's United States operations filed for bankruptcy.

The financial turmoil also prompted German billionaire Adolf Merckle to commit suicide, his family said, as that nation's fifth richest man sank into despair over huge losses suffered by his companies.

Despite weak figures for US housing, factory and service segments, US stocks managed a modest gain on Tuesday, as did European and Asian stocks earlier in the day.

The sagging US housing market, which prompted the implosion of the financial system and brought down the nation's economy, showed further weakness, with pending sales of existing homes in November dropping to their lowest level in at least seven years.

The US service sector, which represents about 80% of its overall economic activity, shrank for a third consecutive month in December, according to the Institute for Supply Management, although the decline was less than expected.

US data released on Tuesday also showed new factory orders plunged 4.6% in November, far more steeply than the 2.5% decline analysts predicted.

In Europe, a sharper-than-expected fall in eurozone inflation to a 26-month low of 1.6% in December knocked back the euro and further supported expectations for a European Central Bank rate cut next week.

But global stock markets rose, with European and Asian shares posting gains for the sixth- and seventh-straight sessions, respectively. The dollar climbed as investors anticipated an economic stimulus package of up to 50 billion euros ($US67.4 billion) in Germany and an expected $US775 billion proposal from US President-elect Barack Obama.

The US Dow Jones Industrial average edged up 0.7%.