Bleak economic data in Europe and a wave of profit warnings and job cuts worldwide renewed investors' fears on Thursday, strengthening the case for more government stimulus efforts and encouraging rate cuts.
The European Commission earlier revealed that economic sentiment in the 15 countries using the euro in December plunged to an all-time low in December amid rising unemployment and as inflation expectations tumbled.
The euro zone economy is sinking deeper into its first recession in the wake of the credit crunch, which slashed financing to companies and households, curbing demand and causing belt-tightening.
Germany said manufacturing orders had dropped by a much bigger-than-expected 6.0 percent in November, hit by collapsing demand at home and abroad. Exports had fallen by an unprecedented 10.6 percent in November as demand for cars and others mainstays of the manufacturing economy plummeted.
Europe's biggest economy and the world's largest exporter posted the biggest monthly drop in exports since reunification in 1990, sending the euro lower against the dollar.
Meanwhile unemployment in Spain topped three million people for the first time ever and is expected to worsen in 2009, according the government.
POLICY RESPONSE RUSH
Policy makers world-wide are rushing to try and limit the damage from the biggest global economic crisis since the 1930s.
U.S. president-elect Barack Obama will warn that the United States economy could remain mired in recession for years without bold action in a speech on Thursday calling for quick action on a fiscal stimulus package worth around $775 billion.
"I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible," he said in excerpts from the speech.
The U.S. budget deficit is expected to hit $1.2 trillion in the 2009 financial year. About 8.3 percent of gross domestic product, this would set a new post World War Two record.
U.S. private employers shed close to 700,000 jobs in December a report said, far more than economists had estimated, and suggesting a more comprehensive government report on Friday will be dismal as well.
"This is shockingly awful," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, adding Friday's report could show the biggest drop in 59 years.
The grim data is also likely to reinforce expectations of a deep ECB interest rate cut on Jan. 15.
INVESTOR GLOOM
World stocks fell on Thursday after the bleak data and poor corporate earnings fuelled gloom about the economic outlook.
"Everyone's been saying the market has factored in bad economic data and poor results, but now we're seeing that this wasn't really true," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo.
Slumping demand for everything from air travel to clothing and personal computers has also prompted a string of grim company announcements in the past 24 hours.
The warnings have come from Britain's two biggest employment agencies, Hays and Michael Page, microchip maker Intel Corp, PC firm Lenovo and investment bank Macquarie Group.
Shares in German chipmaker Infineon dropped after a U.S. research firm, iSuppli, said global sales of dynamic random access memory (DRAM) chips are set to fall 4 percent in 2009 — the third straight year of declines..
European shoppers are still switching to cheaper goods, despite policymakers efforts to boost consumer spending, resulting in the best ever Christmas for British supermarket group J. Sainsbury, but hitting specialists like German DIY chain Praktiker.
China's Lenovo, the world's fourth-biggest PC maker, said on Thursday it was likely to post a loss in the December quarter and was cutting 2,500 jobs to reduce costs.
Macquarie Group, Australia's top investment bank, warned it faced extremely tough market conditions in the December quarter that would hit its profits.
