Signs of distress in the global economy mounted, with shares in U.S. bank Citigroup Inc plunging on fears about its future, oil prices falling and the future of U.S. automakers hanging in the balance.
The Bank of Japan, which left interest rates unchanged at 0.3 percent, warned a recovery would take time given the economic slowdown and turmoil in financial markets.
Global stocks hit five-year lows on fears more companies might not survive the biggest economic upheaval in 80 years but hopes for more action from policy makers helped markets recover.
Citigroup, which has lost half of its market value this week, is weighing various options including selling part of the company or merging with another firm, a person familiar with the situation said.
However, Citigroup repeated that it has a "very strong capital and liquidity position", and Saudi Prince Alwaleed bin Talal said on Thursday that he plans to increase his stake in the bank to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."
Citigroup's woes and fears of a deepening global recession sent most Asian indexes sharply lower early on Friday, but shares later rebounded, helped by a rise in U.S. stock futures and hopes Chinese officials would act again to support the market.
Japan's Nikkei average was up 2.3 percent in late afternoon trade while Shanghai's Composite Index reversed losses of more than 4 percent to edge into positive territory.
On Thursday, the Standard & Poor's 500, fell 6.7 percent to its lowest since 1997 on Thursday.
U.S. 10-year Treasury yields stayed near 50-year lows on the flight to safety, which was prodded on by uncertainty over a possible rescue of the Big Three U.S. automakers.
Democratic congressional leaders demanded executives of General Motors, Ford Motor and Chrysler LLC provide a business survival plan in exchange for their support of up to $25 billion in loans. Lawmakers said the companies' plan could be considered the week of Dec. 8.
In more grim economic news, a U.S. government report showed the number of Americans receiving jobless benefits surged to more than 4 million, the highest in a quarter century.
"I think this is going to be not only a deep recession, at least in the next couple of quarters, but also a long recession," said Conrad DeQuadros, senior economist at RDQ Economics in New York.
JAPAN TO EASE FUNDING PRESSURES
Asia offered little relief. Singapore confirmed on Friday that it was in recession, with the economy's drop in the third quarter bigger than expected. The government also said that the economy could shrink next year.
The Bank of Japan kept interest rates steady after a policy meeting on Friday but cautioned about the economic prospects and said it would tweak its market operations to ease funding pressures towards the end of the year.
"The outlook remains highly uncertain and given the slowdown in overseas economies and the turmoil in global financial markets, it will likely take some time for the necessary conditions for Japan's economic recovery to be satisfied," the BOJ said in a statement.
Finance Minister Shoichi Nakagawa expressed concern about market volatility and said he would cooperate with the BOJ on possible measures to prop up Japan's stock market and economy.
The South Korean won, down almost 40 percent this year on fears of a sharp economic slowdown, hit a nearly 11-year low on Friday but the country's president, Lee Myung-bak, said the government should not intervene to help.
UBS forecast the South Korean economy could shrink 3 percent in 2009, marking its first annual decline in 11 years, and government data showed that household spending posted a record drop in the third quarter.
DEFLATION WORRIES
Officials and businesses elsewhere continued to look for solutions to the crisis, which has already cost trillions of dollars to plug up financial institutions' balance sheets.
A consortium led by sovereign wealth fund China Investment Corp is in talks to buy a 49 percent stake in American Life Insurance Co (Alico), a unit of AIG, in a deal that could be worth up to $10.6 billion, Japan's Nikkei business daily reported.
Trade and foreign ministers of Pacific Rim nations meeting in Lima on Thursday called for new free trade deals as a way out of the worldwide crisis.
In what would normally be a good sign for consumers but now signals weaker global growth, U.S. crude futures were still trading below $50 a barrel, though they recovered on Friday from as low as $48.25 a barrel.
Oil has tumbled by nearly $100 from record highs in July, when inflation fears gripped most of the world. Analysts say the fear now may be for deflation, marked by steadily falling prices and economic stagnation.
St Louis Federal Reserve President James Bullard warned late on Thursday that deflation would be very damaging to the United States economy and that with nominal interest rates already very low, quantitative easing may be needed to keep it at bay.
Quantitative easing recalls the massive liquidity injections made by the Bank of Japan during the 1990s to re-inflate growth once official interest rates reached zero.
"At least over the near term, any additional influence through interest rate reductions will be limited and the focus of monetary policy may turn to quantity measures," said Bullard, who is not a voting member of the Fed's interest rate-setting committee this year.
