Europe's top banker pressed the U.S. Congress to approve a $700 billion bailout of the U.S. financial industry on Friday and urged European states to unite in tackling a crisis now shaking the world economy.
European Central Bank President Jean-Claude Trichet's comments clearly echoed a growing a mood of alarm in EU capitals ahead of the vote in the House of Representatives, expected later on Friday. The outcome is far from certain.
The House, aware of the unpopularity of the plan to bailout banks whose highrisk ventures brought hardship for the poorest, shocked world markets on Monday by rejecting a previous draft.
The leaders of Italy, France, Britain and Germany are scheduled to meet in Paris on Saturday and will discuss the outcome of the vote and measures to deal with the already damaging consequences of the credit crisis for Europe.
"(U.S. Treasury) Secretary (Henry) Paulson's plan obviously must be passed," European Central Bank President Jean-Claude Trichet told Europe 1 Radio. "It must be. It is necessary.
"We must do everything to preserve the unity of the Europeans."
In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it would cut 2,000 investment banking jobs — on top of the 4,100 positions cut in the past year.
Worries grew that even if Washington agrees on the package, it will not be enough to resolve deeper-rooted weakness. New data showed that a U.S. recession is nearing and Europe's economy is worsening.
"Investors expect the U.S. House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable," said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.
A collapse in the U.S. housing market and resulting "bad mortgages" has undermined confidence in the financial sector, with inter-bank lending and credit to businesses and private individuals all but seizing up. Central Banks have injected billions of dollars to maintain some flow of funds.
UNILATERAL ACTION
Ireland took unilateral action to shore up its banks this week by guaranteeing deposits, a move some EU partners said could break competition rules and threatened the unity necessary to ensure an ordered approach to the turmoil ahead.
U.S. payrolls data due to be released at 1230 GMT on Friday were forecast to show that businesses cut jobs for the ninth straight month in September, with 100,000 non-farm jobs expected to be lost, against a drop of 84,000 in August, according to the median in a Reuters poll of economists.
Stocks in Tokyo dropped 1.9 percent to their lowest close in three years, and elsewhere in Asia they were off by 0.85 percent. In Europe, stock markets opened slightly weaker.
The bailout package, which House Speaker Nancy Pelosi said would not be brought to the floor without the votes secured to pass it, would be part of a broader co-ordinated action.
Governments are expected to cut interest rates and regulation of the financial industry after a period of excessive lending will almost certainly be tightened.
The crisis coincides with campaigning for the U.S. presidency, a time when the authority of incumbent George W. Bush's authority is at a low ebb.
Republican Vice-Presidential candidate Sarah Palin spoke in a debate on Thursday night of greed and corruption on Wall Street. Democratic nominee Joe Biden echoed much feeling on the streets in the United States.
"If you need any more proof positive of how bad the economic theories have been, this excessive deregulation, the failure to oversee what was going on, letting Wall Street run wild, I don't think you needed any more evidence than what you see now."
BLEAK PICTURE
New economic data painted a bleak picture. U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high.
Wall Street endured a dismal day on Thursday, as stocks dropped 4 percent and a seizing up in money markets drove a rally in the dollar.
The European Central Bank, meanwhile, indicated it might cut interest rates for the first time in five years, but two Federal Reserve officials pushed back against market expectations of a big U.S. rate cut later this month, that monetary policy was already easy and inflation still a concern.
The oil price fell on Friday, with London Brent crude dropping below $90 a barrel for the first time since Sept. 17 on mounting economic worries.
"Thursday's decline in the U.S. markets and the subsequent follow-through today in Asia underscore the need for this bill to pass," said Andrew Barrett, managing director and strategist with Citi Private Client Investment in Hong Kong.
"The bottom line is quite simple: the markets will rally on passage and sell off on any further delay," he said.
At the center of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the U.S. Federal Reserve shot to a record high, averaging a staggering $368 billion per day.
