Recession in Germany and a slowdown in China painted a bleak economic picture on Tuesday, a backdrop which top miner BHP Billiton cited in abandoning a $66 billion bid for Rio Tinto.
Wary of the effects of the worst financial crisis in 80 years, BHP Billiton called off its hostile bid for rival Rio, catching markets off their guard, and the United States, EU and France prepared fresh economic stimulus packages.
"We have concerns about the continued deterioration of near-term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value," BHP Chairman Don Argus said in a statement.
China, the world's biggest consumer of many metals, this month unveiled a 4 trillion yuan ($586 billion) spending package to prop up its economy, but growth would still likely slow to around 7.5 percent in 2009, the World Bank said.
That would be China's slowest growth rate since 1990.
Official data confirmed Germany is in recession for the first time in five years, with foreign trade a big drag on gross domestic product in the third quarter.
OECD CALL TO ARMS
Governments and central banks should pump more support into their economies to dampen the impact of the worst recession in decades, Paris-based think-tank the Organisation for Economic Cooperation and Development said.
It is advice they are already heeding.
After Britain announced on Monday a 20 billion pounds fiscal boost, including a 2.5 points cut in value-added tax, the United States and European Union will put their shoulders to the wheel.
U.S. Treasury Secretary Henry Paulson plans to announce on Tuesday a programme to increase the availability of auto loans, student loans and credit cards, the Wall Street Journal reported, citing people familiar with the matter.
The U.S. Treasury will contribute between $25 billion to $100 billion to the facility, the paper said. The European Commission will propose on Wednesday measures to stimulate the recession-hit European economy including VAT cuts and a call for lower European Central Bank rates.
A draft proposal, seen by Reuters, did not specify the size of the stimulus plan, which Germany said last week could be worth some one percent of European Union GDP.
The French government will launch a "quite massive" stimulus plan in the next 10 days, President Nicolas Sarkozy said on Tuesday. Germany is lukewarm about some of the EU's proposals.
RECESSION A REALITY
What started more than a year ago as a meltdown in the U.S. market for high-risk mortgages has engulfed the world, freezing access to credit, sparking bank collapses and requiring the financial bailout of entire countries.
The OECD projected the U.S. economy would shrink 0.9 percent next year. It revised its forecast for the euro zone, saying it would contract 0.6 percent, more than the 0.5 it had predicted.
The second snapshot of third-quarter U.S. economic activity, due at 1330 GMT, is expected to show the economy shrank a little more than first estimated in the third quarter, by 0.5 percent rather than 0.3, driven by a sharp drop in consumer spending.
A further deterioration is expected this quarter, putting the world's largest economy in recession.
"The recession which we are heading into now may turn out to be even deeper and even the world economy at large may go into recession," OECD chief economist Klaus Schmidt-Hebbel said.
Bank of England Governor Mervyn King said Britain's fiscal package would mitigate its recession but not solve it.
"The most pressing is to ensure that normal bank lending is resumed," he told a parliamentary committee. "Without that, the downturn in activity could become protracted and extremely damaging."
Following huge losses tied to the U.S. housing market collapse, banks continue to hoard cash rather than lend it to each other, to businesses and individuals.
CITI SILVER LINING FADES
Corporate gloom was widespread, eclipsing relief at the rescue of number two U.S. bank Citigroup.
Global financial turmoil forced AXA, Europe's second-biggest insurer based on premium income, to cut its 2008 underlying profit forecast and made its 2012 financial goals increasingly "obsolete".
The world's largest steelmaker ArcelorMittal is poised to cut 16 percent of its U.S. workforce, beginning in January, the Wall Street Journal said.
Australia's Qantas airline said demand had slowed, forcing it to cut its 2009 profit forecast.
The president of Japan's Canon told Reuters that the global market for digital cameras may contract next year and Honda, the world's top motorcycle maker, said sales could stop growing in 2009.
Washington's weekend rescue of Citigroup prompted a surge on Wall Street on Monday. But stock market relief was short-lived. European shares were flat as Rio shares slumped and stock futures pointed to a weak start for U.S. shares on Tuesday.
