U.S. consumers cut their spending even more sharply than expected last month, data showed on Wednesday, while Germany's export-driven economy was forecast to shrink this year at its fastest pace in more than six decades.
Sales at U.S. retailers fell a steeper-than-expected 2.7 percent in December after a revised 2.1 percent drop in November, while economists said the German economy — which has never shrunk by more than one percent in a year since World War Two — could shrink by three percent or more this year.
"Germany is facing the most difficult economic times in decades," said German Chancellor Angela Merkel.
Euro zone member Greece had its credit-rating downgraded by Standard & Poors while the prime minister of Ireland, another member of the currency bloc, denied talking about seeking help from the IMF.
Economies such as the United States, Britain, Ireland and Spain, where soaring house prices fuelled a long-running credit boom, are expected to bear the brunt of recessions induced by the lending drought since widespread bank exposure to high-risk debt began to emerge in August 2007.
Irish prime minister Brian Cowen's denial that his government had any plans to call on the International Monetary Fund (IMF) to help the country's ailing economy did not stabilise the euro for long.
It has fallen more than a cent against the dollar since traders cited a report that Cowen had said Ireland may need IMF help if its economic prospects continued to deteriorate.
BANKS UNDER PRESSURE
The latest U.S. data showed relentless job cuts in 2008 — the worst since 1945 — forced consumers to cut back on spending even during the key holiday period.
"Bad, ugly and worse," said Marc Pado at Cantor Fitzgerald, commenting on the retail sales figures, which included an unexpectedly sharp downward revision to November numbers, too.
The worst financial and economic crisis since the 1930s continued to squeeze global banks.
Deutsche said it lost about 4.8 billion euros ($6.38 billion) in the final three months of 2008 alone and analysts said Europe's biggest bank, HSBC Holdings , might need to raise up to $30 billion in a rights issue.
HSBC has not had to raise capital during the financial crisis, unlike most of its big rivals, due to its historically strong capital and liquidity. But its shares hit a 7-year low after Morgan Stanley slashed its earnings forecasts for the bank for this year and next, and said its relative capital position is not as strong as in the past.
BRITISH CREDIT LINE
Governments around the world have already pledged hundreds of billions of dollars to shore up bank capital, cut taxes and fund projects that will create jobs, while central banks have pumped funds into the money markets and slashed interest rates.
Britain offered on Wednesday to spend 20 billion pounds ($29.2 billion) on a scheme to guarantee existing loans to small and medium-sized companies. The deal met a sceptical response as policymakers and analysts questioned whether official efforts would make banks lend more freely and enable companies and consumers to keep spending.
U.S. giant Citigroup moved on Tuesday towards dismantling what was the world's biggest financial services group, as it agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management business, and may isolate toxic debts in a "bad bank".
