Bleak export data from Europe's biggest economy and a wave of profit warnings and job cuts soured investor sentiment on Thursday after an employment report suggested U.S. job losses in December could be the worst in almost 60 years.
Germany said exports had fallen by an unprecedented 10.6 percent in November as demand for cars and others mainstays of the manufacturing economy plummeted, deepening worries about the country's already weak 2009 outlook.
It was the biggest monthly drop since reunification in 1990, sending the euro briefly lower against the dollar and the pound.
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, including from microchip maker Intel Corp, PC firm Lenovo and investment bank Macquarie Group.
Policy makers world-wide are rushing to try and limit the damage from the biggest global economic crisis since the 1930s. The Bank of England is seen cutting its interest rates to 1.5 percent or lower later on Thursday, a level unprecedented in the central bank's more-than 300-year history.
U.S. president-elect Barack Obama is expected to call for quick action on a fiscal stimulus package worth around $775 billion in a speech later on Thursday, even as the government there heads toward a $1.2 trillion budget deficit in the 2009 financial year.
Such a deficit would be around 8-9 percent of gross domestic product based on economic output of close to $14 trillion.
U.S. private employers shed close to 700,000 jobs in December, 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.
INVESTOR GLOOM
The economic woes saw European shares fall in early trading, led by mining stocks, after Asian stocks had earlier fallen by around 4 percent, their first drop in nine trading sessions.
"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.
"From here on we may see the real recession, and in that sense, the rise in global stock markets around the end and start of the year may actually have been based on errors of judgment."
Shares in Britain's third biggest supermarket chain J. Sainsbury rose after it said soaring demand for budget products had boosted underlying sales to the top of analysts' forecasts. The 150-year-old firm with over 500 supermarkets said it aimed to create up to 4,000 new jobs this year.
Volkswagen also countered some of the gloom in the economic data saying sales of its Audi brand were up 4.1 percent in 2008 though the firm gave no outlook for 2009.
RATE CUTS SEEN
Financial markets are almost evenly split between pricing in a British rate cut of either half a percentage point or three-quarters of a percentage point.
Some analysts say the Bank of England might even cut rates by 1 percentage point from the current 2 percent to try to prevent the world's fifth-biggest economy slipping into a deep and lasting downturn.
The Bank of Japan has already cut rates to a rock-bottom 0.1 percent and Governor Masaaki Shirakawa said on Thursday the central bank could do more to stabilise financial markets.
In addition to the proposed stimulus package in the U.S., governments elsewhere are busy with their own spending plans.
Japan's deficit is expected to grow to about 15 trillion yen ($162 billion), or more than 2 percent of GDP, in the year to March 2012, the Nikkei business daily reported.
In South Korea, President Lee Myung-bak ordered officials to take preemptive measures to counter what he called a state of national economic emergency.
CORPORATE STRUGGLE
Companies are feeling an increasing squeeze from the crisis.
China's Lenovo, the world's fourth-biggest PC maker, said on Thursday it was likely to post a loss in the December quarter.
Lenovo, which bought IBM's PC business in 2005, said it 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.
The financial crisis has also helped expose some of the biggest corporate frauds as investors, watching their asset values dwindle, asked tougher questions of executives.
Indian outsourcing company Satyam Computer Services planned a news conference at 1130 GMT on Thursday, a day after the firm's chairman quit after disclosing that profits had been falsely inflation for years.
But in a sign that some of the extreme risk aversion of late 2008 had waned, governments from emerging economies including the Philippines, Turkey, Brazil and Columbia raised a total of $4.5 billion from international debt markets in the first trading week of the new year.
Just $2 billion was raised by emerging market sovereigns in the preceding four months as the collapse of Lehman Brothers sent global capital markets into a tailspin.
