Enlarge imageBy Jan Dahinten
SINGAPORE (Reuters) - South Korea's central bank cut interest rates for the third time in a month on Friday to soothe markets and shore up its economy, after a flurry of deep rate cuts across Europe failed to calm panicky investors.
Central bank action could not halt a slide in global stock markets and coincided with a warning by the International Monetary Fund that the developed economies were headed for the first full-year contraction since the World War Two in 2009.
"Increasingly, the signs point to a deep and synchronised global recession that began last quarter and has gathered momentum," said Bruce Kasman, an economist at JPMorgan Chase in New York.
The IMF cut its 2009 global growth forecast to 2.2 percent from 3 percent, a prediction made only last month, and urged governments to ramp up spending to support the economy.
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Asian stocks fell for a third day and commodity prices also tumbled, as layoffs and corporate profit warnings piled up.
Later on Friday, Barack Obama is due to hold his first news conference since winning the U.S. presidency after a meeting with his economic team, as the world awaits signs of how he might tackle the economic crisis.
Markets are particularly keen to learn who will become Obama's Treasury Secretary, but it was not clear when he might announce his choice.
Among those seen as leading candidates for the job are Timothy Geithner, president of the Federal Reserve Bank of New York; former Treasury Secretary Lawrence Summers; and former Federal Reserve Board Chairman Paul Volcker.
Investors also looked anxiously ahead to Friday's U.S. jobs payroll report for October, which is expected to further underscore the weakening economy.
According to the median of a Reuters forecast of 87 economists another 200,000 non-farm jobs were shed last month, which would be the largest monthly cut in jobs since March 2003 and would mark a 10th straight month of losses.
CORPORATE WOES
In Asia, Toyota saw its stock overwhelmed with sell orders and tumbling as much as 12 percent, after it halved its profit forecast because of dwindling demand. The carmaker's stock had fallen 10 percent on Thursday ahead of the profit warning.
Its woes illustrate how the financial crisis, which started when the housing boom in the United States turned sour 15 months ago, has spread from Wall Street to Main Street.
Hit by economic slowdown, sliding property prices and a sharp fall in its capital markets business, Singapore's DBS Group, Southeast Asia's biggest bank, suffered a bigger-than-expected 38 percent drop in profit, as bad debt charges quadrupled. Its shares fell 9 percent.
As investors are bracing themselves for a dismal set of quarterly results from General Motors and Ford on Friday, industry sources said their chief executives sought a $50 billion federal bailout to survive a financial crunch blamed on a worsening economy and the "near collapse" in demand for cars.
Rick Wagoner of General Motors, Alan Mulally of Ford and Bob Nardelli of Chrysler held meetings with House Speaker Nancy Pelosi and Senate leader Harry Reid to discuss government financial support for their companies.
MISSED CHANCE
South Korea's moderate interest rate cut of 25 basis points to 4.00 percent, the lowest since early June 2006, was in line with the consensus forecast in a Reuters poll.
But it disappointed some investors, who had hoped for a bolder move.
"The central bank may have missed a good chance to cut it deeply," said Park Jong-youn, a fixed-income analyst at Woori Investment & Securities.
The move follows a two-step 100 basis point easing in October, including a record 75 basis point reduction at an emergency meeting last week as part of the global efforts to limit the fallout from the financial crisis.
With inflationary pressures easing further as oil briefly fell below $60 a barrel earlier on Friday, its lowest since March 2007, central banks' focus has now firmly moved from inflation to growth.
The Bank of England shocked markets and pundits by cutting rates by 1- percentage points to 3 percent, the lowest level in more than half a century, to tackle Britain's slumping housing market, a decline in manufacturing and rising unemployment.
Investors, who had expected a cut of 50 basis points, called Thursday's move "astonishing" and "spectacular."
The European Central Bank met market expectations by reducing its benchmark interest rate for 15 nations sharing the euro by 0.5 percentage point to 3.25 percent.
ECB President Jean-Claude Trichet did not rule out a further cut, though some analysts called the half-point reduction disappointing considering that the Bank of England acted so boldly. The U.S. Federal Reserve's benchmark rate stands at 1.0 percent.
The U.S. Federal Reserve and the central banks of Japan and China cut rates last week and Australia kicked off this week's round of cuts with a 75 basis point reduction.
Shares on Wall Street were sold off on Thursday in the worst two-day slide since October 1987, with disappointing corporate outlooks and bleak sales from big retailers fuelling investor fears of a deepening economic downturn.
In the latest sign of waning U.S. economic vigour, growth in productivity slowed sharply during the third quarter despite efforts by businesses to keep it aloft by slashing payrolls.
(Reporting by Reuters bureaus worldwide; Editing by Tomasz Janowski and Alex Richardson)
