Protectionist worries and dire figures from a shrinking euro zone economy set a gloomy tone for a G7 meeting on Friday where finance leaders will focus on tackling global recession and setting new market rules.
Australia's parliament pushed through a stimulus plan and the U.S. Congress was due to vote later on President Barack Obama's rescue package to lift the economy out of recession.
Ahead of the Group of Seven meeting in Rome, data showed the eurozone economy as a whole and those of its three biggest members — Germany, France and Italy — all contracted more sharply than expected in the final quarter of 2008.
"At the G7 the important themes will be the rules to introduce for financial markets, and the economic crisis," Italian Prime Minister Silvio Berlusconi said.
The German and Japanese finance ministers voiced concern about rising protectionist sentiment. Japan's Shoichi Nakagawa said his French counterpart wanted to raise the issue of a "Buy American" clause in U.S. stimulus plans.
"For the United States and Europe, who have been pushing for open markets, or any other countries to resort to protectionism under current circumstances would be, I think, absolutely wrong," Nakagawa said.
German Finance Minister Peer Steinbrueck said the world must not repeat the mistakes of the 1930s Depression. "We notice more and more that protectionist tendencies are no longer ruled out on the international stage."
PRESSURE ON GOVERNMENTS
As the crisis hits profits and jobs, governments are coming under pressure to defend domestic workers and industries. Britain has seen wildcat strikes against the use of foreign labour, and France suggested last week its car makers should move plants back home from the Czech Republic.
The eurozone economy saw its deepest contraction on record in the fourth quarter of 2008, shrinking 1.5 percent against the previous three-month period and piling pressure on the European Central Bank for a half-point rate cut in three weeks' time.
German GDP fell 2.1 percent quarter-on-quarter, the worst decline since the country's unification in 1990.
"The economy is now in its worst postwar recession. Due to this low starting point, we've cut our GDP forecast for 2009 to -3.6 percent from -2.5 percent. Downwards risks predominate. There can be no talk of economic recovery for now," said Alexander Krueger of Bankhaus Lampe.
French gross domestic product fell 1.2 percent in the fourth quarter of 2008. Economy Minister Christine Lagarde predicted a contraction of more than 1 percent in 2009.
Italy's economy shrank by a quarterly 1.8 percent in the last three months of 2008, the steepest drop since 1980. Among newer European Union members, Hungary entered recession in the fourth quarter and Estonia saw GDP dive 9.4 percent year-on-year, its worst performance ever.
COMPANIES HIT
Economic recession, triggered by a banking crisis, is spreading quickly through all continents and threatening social order in developed and developing countries alike.
Companies are struggling. France's Renault scrapped its once sacrosanct 2009 profit targets, dropped its dividend and slashed output as it warned that the crisis would change the landscape of the global auto industry.
But some of Friday's corporate news from Europe was more encouraging. German industrial conglomerate ThyssenKrupp unveiled a better-than-expected pretax profit and new orders in the fiscal first quarter, and saw its shares rise 4.4 percent.
More details emerged about plans to lift the U.S. economy out of recession, with a plan to subsidise mortgages raising hopes for a solution to the slump in the U.S. housing market which has reverberated around the world.
The U.S. Congress is due to vote on an economic stimulus bill later on Friday after Democratic leaders in both houses tied down final details of the deal, which includes about $507 billion in government spending and $282 billion in tax cuts.
Germany's Bundestag, the lower house of parliament, approved a 50 billion euro ($65 billion) stimulus package, adding to a first installment last year which the government said was worth some 31 billion euros. The upper house must also approve it.
Last-minute deal-making saved Australia's A$42 billion ($27.4 billion) stimulus plan. Parliament passed the package after it was sweetened with about $1 billion in separate spending for Australia's ailing rivers, demanded by a key independent senator.
Asian shares on Friday reversed three sessions of losses during which investors had sought safe havens, with hopes rising that governments around the world were coming up with measures to cushion the worst of the global downturn.
The MSCI index of non-Japan Asia-Pacific stocks rose 2.45 percent, partly reversing a 3.5 percent fall in the previous three sessions. Japan's Nikkei ended 0.96 percent higher.
In Europe, the FTSEurofirst 300 index was 2 percent higher as optimism about the U.S. mortgage subsidy plan boosted banks.
