Britain slashed borrowing costs by a record 1.5 percentage points on Thursday and Europe was expected to follow in cutting its rates as part of concerted efforts to revive world commerce and ward off deep recession.
The Bank of England, faced with a slumping housing market, steep decline in manufacturing and increased unemployment, cut its interest rate to three percent, citing a marked deterioration in the economic outlook.
The cut far exceeded expectations and underlined the gravity with which economic leaders view a crisis that began with a slump in the U.S housing market and has now enveloped the world economy.
Heavy U.S. job losses, a sharp decline in the world services sector and bleak company outlooks painted an increasingly dark picture this week.
Last month, the Bank of England joined forces with the U.S. Federal Reserve and European Central Bank to make an emergency half-point cut in interest rates. Politicians in the 15-country euro zone hope a rate cut from the ECB, possibly half a point, will help stave off recession and limit unemployment.
Rate cuts, however, may help less than in the past.
Banks infected by a collapse of confidence within the financial system are still wary of extending loans and are reluctant to pass cuts on to borrowers. But the sheer scale of Thursday's cut will put pressure on banks to conform and back smaller businesses, some facing bankruptcy.
The Swiss national bank cut its rates by 50 basis points.
Markets looked to U.S. President-elect Barack Obama to name key members of an economic team that must tackle a crisis that originated in the U.S. housing market 15 months ago before enveloping the banking system and threatening the very foundations of the global market economy.
"After the world rally on the day of the presidential election, investors have now shifted their focus to how fast, and how well the new administration will address the current economic issues," said Yoo Soo-min, analyst at Hyundai Securities.
Toyota Motor Corp, the world's biggest automaker, slashed its annual operating profit forecast by more than half and its shares tumbled over 10 percent, making it the latest casualty in an industry hit hard by the slump. Goldman Sachs Group Inc was laying off 3,200 employees this week, according to sources familiar with the situation.
Markets buckled under the weight of the grim data, with stocks in Tokyo falling 6.5 percent and elsewhere in Asia by more than 7 percent.
European stocks and Britain's FTSE 100 index were down 4 percent. Russia's MICEX index tumbled 8 percent, prompting a one-hour suspension of trade.
U.S. crude oil lost 2 percent to $63.96 a barrel, against a record high above $147 set in July. The fall, reflecting expectations a global recession, will reduce inflationary pressure on national economies and ease rate cuts.
Australia began this week's round with a 75 basis point cut.
SWIFT ACTION
Obama's landslide win on Tuesday along with the Democrats' tighter grip on Congress, raised hopes of a speedier injection of billions of dollars to shore up the struggling economy.
The first black U.S. president has to wait until Jan. 20 to move into the White House. In the meantime, though, he must decide on a successor for Treasury Secretary Henry Paulson, one of the architects of a $700 billion state rescue package inconceivable before the crisis broke.
Timothy Geithner, president of the Federal Reserve Bank of New York, former Treasury Secretary Lawrence Summers and former Fed Chairman Paul Volcker are among those mooted for the Treasury post. Obama may announce his pick on Thursday.
The ECB, staring at the first euro zone-wide recession since its inception in 1999, is seen certain to cut its benchmark rate by half a point to a two-year low of 3.25 percent. But interest rate traders are pricing in a 75 basis point cut.
A half-point reduction would match the Oct. 8 emergency cut made in unison with the Fed and other major central banks. A larger reduction would be the ECB's biggest ever.
The slump is already encroaching on Main Street. World number two sporting goods maker Adidas stood by its 2008 forecasts, but retracted targets for next year, declaring that conditions were too difficult to predict.
A Swedish central bank official said the shape of a Nordic aid package to crisis-hit Iceland had been decided. Norway said earlier this week it would provide Iceland with a 500 million euro ($643 million) loan to help the country rebuild an economy in tatters following the collapse of its biggest banks.
The International Monetary Fund also approved a hefty $16.5 billion loan for Ukraine.
