Asia and Europe's biggest economies outlined plans to help banks and other businesses on Thursday, with Japan unveiling a record stimulus to counter a deepening recession.
As part of a $154 billion initiative to increase lending, support small firms and promote green technologies, Japan's ruling party said it would increase long-term lending to companies by a government-affiliated bank by 8 trillion yen ($80.02 billion).
Europe's biggest economy Germany offered to take over stricken bank Hypo Real Estate, the country's highest profile casualty of the financial crisis and potentially the first nationalisation of a German bank in the postwar era.
The desperate need to stabilise banks and economies was underlined by grim European data that showed how the recession had hammered industrial demand.
German industrial production dropped by almost a quarter year-on-year in February, recording its biggest annual fall since reunification in 1990. A recent weakness in orders also pointed to further weakness in output in the coming months.
"February's drop in German industrial production confirms that the sector is still in dire straits and suggests that GDP could fall much more sharply in Q1 than in Q4," Jennifer McKeown of Capital Economics said.
Italy, Sweden and Finland also posted weak data.
In Britain, the Bank of England held interest rates steady and said its 75 billion pound ($110.5 billion) scheme to boost bank lending and shorten the recession by buying government debt would continue for another two months.
European Central Bank President Jean-Claude Trichet urged countries to act responsibly with exchange rate policies and said the central bank still had some leeway to cut its main interest rate.
European shares edged higher in choppy trade, led by banks, including Germany's HRE, ING Group and Barclays.
Dutch financial services giant ING said it would sell up to 8 billion euros ($10.62 billion) in assets to reduce risk and focus on Europe, while in Britain Barclays Plc announced the sale of asset management unit iShares.
Japan's third-largest bank, Sumitomo Mitsui Financial Group , is also likely to raise up to $8 billion and forecast a net loss of more than 3 billion for the year just ended, sources said.
The stimulus announcement in Japan sent the benchmark Nikkei share average up almost 4 percent to its highest close in three months.
GREEN BOOST
But while equity markets liked the Japanese plan, the prospect of record sales of government debt to pay for it spooked the bond market.
Japanese government bonds sank after the ruling Liberal Democratic Party said the $154 billion in new spending on a range of subsidies, loans and other stimulus should be paid for by issuing up to $110 billion in new bonds.
Much of the new spending was focused on the environment and jobs. Shares in automakers and solar power-related firms rose as the plan included measures to promote the use of solar panels and fuel-efficient cars.
"The contents look like temporary measures to front-load demand, but they do not pay attention to increasing productivity on the supply side," said Masamichi Adachi, senior economist at JPMorgan.
The stimulus spending — 3.1 percent of the gross domestic product of the world's second-largest economy — is to battle Japan's deepest recession since World War Two as exports and profits crumble.
