Finance and Economic

Japan’s industrial production jumped the most in 56 years in April and India’s economy expanded more than economists forecast in the first quarter, adding to evidence that the global recession is easing.

Output in Japan surged 5.2 percent from March, the Trade Ministry said in Tokyo. India’s economy, Asia’s third-biggest, grew 5.8 percent, more than the 5 percent analysts predicted. Other releases today showed U.K. house prices unexpectedly rose in May and German retail sales climbed the most in four months. In the U.S., a report due later today may show consumer confidence is improving.

The world economy is showing signs of recovery from its worst recession since the Great Depression after central banks and governments cut interest rates close to zero and pumped more than $13 trillion into their economies. The International Monetary Fund nevertheless expects the global economy to contract 1.3 percent this year and some strategists say it’s too early to give the all-clear.

“The worst of it is probably coming to an end,” Stephen King, chief economist at HSBC Holdings Plc, said in an interview on Bloomberg Television in London today. At the same time, “the level of activity around the world is still remarkably depressed. We’ll see three to four months of pretty good news. But then all bets are off.”

Stock Markets

Reports on the U.S. economy today gave a mixed picture. While business activity contracted at a faster pace than forecast this month, consumer confidence rose to the highest since September.

Investors are anticipating a global recovery. The MSCI World Index of 23 major stock markets rose 1 percent to 946.96 points today and is poised to extend its longest winning streak since the credit-market seizure began. The dollar weakened against the Australian and New Zealand currencies as investors sought higher yields. Crude oil rose to the highest in almost seven months.

Consumer sentiment in the U.K. matched the highest level in almost a year this month. Poland today posted the only growth among the European Union’s 10 eastern members so far in the first quarter. Households in Japan are the least pessimistic they’ve been in 10 months.

“It’s safe to argue that we’ve turned the page after severe weakness in the first quarter,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore.

Made in America

Asia’s ability to lead the world economy out of recession will probably be hampered by its dependence of exports to a U.S. economy still burdened by excessive debt, said Stephen Roach, chairman of Morgan Stanley Asia.

“The region’s fate remains made in America,” he said in an e-mailed note. “That is where hopes of an Asia-led rebound are most tenuous. After a dozen years of excess, the overextended American consumer is tapped out.”

Rising unemployment and credit conditions around the world also mean any global recovery is likely to be weak.

The U.S. unemployment rate is already the highest in a quarter century. Japan’s jobless rate climbed to a five-year high in April, prompting households to pare spending for a record 14th month, separate reports today showed no fax pay day loan.

Even after April’s output gain, Japanese production is running at two-thirds of last year’s levels, saddling manufacturers such as Nikon Corp. with workers and factories they no longer need. That’s calling into question the health of a stock market rally that’s seen the Nikkei 225 Stock Average surge 35 percent since March 10, says Andrew Bell, head of research and strategy at Rensburg Sheppards Plc in London.

Heart of Dilemma

“The actual level is about where Japanese industrial production was in 1980,” said Bell. “That goes to the heart of the dilemma over the stock market. How far can you travel on things getting worse less rapidly or recovering a small amount of the ground lost?”

Federal Reserve Chairman Ben S. Bernanke is also struggling to bring down borrowing costs to revive the U.S. housing market. Mortgage rates are almost back to where they were in March, before the 30-year rate fell to a record and sparked a refinancing boom.

Bond yields are rising. U.S. Treasuries today headed for their steepest two-month loss since 2003 on concern about President Barack Obama’s record borrowing spree. In the euro region, the European Central Bank said today that loans to households and companies grew at the slowest pace on record in April.

Credit Flows

“There are still a whole lot of problems in financial markets and credit flows,” said Matthew Sharratt, economist at Bank of America in London.

For now, economies get a fillip in coming months as companies replace stockpiles ran down during the depths of the recession. U.S. industrial production contracted the least since October last month and Japanese manufacturers plan to boost output in May and June. Exports from Japan expanded last month from March as China’s $586 billion stimulus package spurs demand.

China’s prospects have also improved, analysts say. The world’s third-largest economy will expand 7.5 percent this year, according to the median estimate of 14 economists surveyed by Bloomberg News, up from a 7.1 percent forecast in February.

“What we’re seeing is a good old-fashioned kind of inventory rebuild associated with the fact that supply collapsed further than demand over the last 12 months and we’re now seeing a recovery in that supply,” said King.

India’s faster-than-expected growth makes it easier for re- elected Prime Minister Manmohan Singh to capitalize on the improving economy. The Sensitive stock index has surged 20 percent since Singh’s May 16 electoral triumph on optimism a coalition without communist parties will allow him to sell state assets and accept more foreign investments.

“There’s been an improvement and investors seem to have recovered from the near-fatal heart attack at the turn of the year,” said Sharratt. “It now has to translate into activity.”

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U.S. foreclosure activity in April jumped 32 percent from a year ago to a record high, and should mount because temporary freezes on foreclosures ended in March, RealtyTrac said on Wednesday.

One in every 374 households with mortgages got a foreclosure filing in April, the highest monthly rate since RealtyTrac began tracking it in January 2005. Filings were reported on 342,038 properties last month.

The abundance of distressed properties keeps pressuring home prices, thwarting a housing recovery that is critical to rejuvenating the recessionary U.S. economy.

Most of April’s filings, which included notices of default and auctions, were in early stages. Bank repossessions, known as real-estate owned or REOs, fell on a monthly and annual basis to the lowest level since March 2008.

“This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria,” RealtyTrac chief executive James J. Saccacio said in a statement.

A temporary foreclosure freeze by major banks and government-controlled home funding companies Fannie Mae and Freddie Mac ended before President Barack Obama’s massive housing stimulus, unveiled on March 6, could take root.

“It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months,” Saccacio said.

Foreclosure activity rose less than 1 percent in April from March to post the second straight monthly record online instant cash advance. A dip would have been more typical following the March jump, but the moratoria caused artificial delays, RealtyTrac said.

“It looks like the dam burst in March and continued in April,” Rick Sharga, senior vice president at RealtyTrac in Irvine, California, said in an interview.

Unemployment that is at its highest rate in more than a quarter century has left many borrowers drowning in debt even as new federal housing relief starts to trickle in.

Fear of losing a job is also draining consumer confidence and the willingness to commit to such a large purchase.

Still, housing affordability is at a record high and the deeply discounted foreclosure market accounts for more than half of home sales activity.

Home prices have tumbled more than 30 percent from their 2006 peaks, based on Standard & Poor’s/Case-Shiller indexes.

Also luring first-time home buyers are new federal tax credits and mortgage rates at generational lows. Fixed 30-year mortgage rates averaged 4.81 percent in April, down from 5.92 percent a year earlier, Freddie Mac said.

RealtyTrac expects at least three or four months of high foreclosure activity before the wave ebbs, noting a lag of up to six months between unemployment and foreclosure. 

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Indian mid-sized IT outsourcer Tech Mahindra won an auction to buy Satyam Computer Services Ltd, the company at the heart of India’s biggest corporate scandal.

Satyam said on Monday Tech Mahindra agreed to buy a 31 percent stake at 58 rupees per share — a 23 percent premium to Satyam’s last closing price. The bid edged out offers from engineering conglomerate Larsen & Toubro, widely seen as a front-runner, and private equity firm WL Ross & Co.

Tech Mahindra, in which Britain’s BT Group holds about 31 percent stake, will pay $351 million for 31 percent preferential allotment of new shares.

Satyam’s sale is likely to help restore confidence in India’s IT services sector at a time the global economic downturn has already slowed growth.

“Tech Mahindra will really have to act fast now and if they don’t act fast then client erosion will continue at Satyam,” said Tarun Sisodia, head of research at Anand Rathi Financial Services.

Three months ago, Satyam’s founder and chairman shocked investors by saying profits had been overstated for years, and put in doubt the survival of a company once ranked as India’s fourth-largest software services exporter.

The government quickly stepped in and sacked the board to limit damage to India’s once-shining IT services sector.

With the purchase, Tech Mahindra, the sixth-largest Indian outsourcer, will be better equipped to wrestle market share from leading local outsourcing rivals Tata Consultancy Services, Infosys Technologies and Wipro

() cash till payday.

Tech Mahindra, a unit of tractor and utility vehicle maker Mahindra & Mahindra, will have to make open offer for a further 20 percent of Satyam at a minimum price of 58 rupees a shares, valuing Satyam at about $1.1 billion on paper.

“If the winning bid had been more than 60 rupees a share then it wouldn’t have made any sense for the buyer. The 58 rupees offer is on fair value side,” Sisodia said.

The Satyam buy will help Tech Mahindra, diversify its services by reducing its reliance on the telecoms industry, analysts said.

Tech Mahindra shares surged by as much as 25 percent after Larsen & Toubro, which owns 12 percent of Satyam, was reported to have dropped out of the bidding, but trimmed gains to trade 15.3 percent higher at 368.95 rupees by 0900 GMT.

Satyam shares rose 5.8 percent to 49.90 rupees, after earlier jumping 16 percent to a nine-week high. The company was valued at roughly $675 million in the market.

UNCERTAINTY OVER VALUATION 

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It’s the bonuses, stupid.

As the economy bleeds jobs and government bailouts for the private sector balloon, taxpayers and investors have become increasingly outraged about bonuses paid to employees at distressed companies – particularly those viewed as having had a hand in sparking the global downturn.

Over the past few weeks, battered insurer American International Group Inc. has become a lightning rod for criticism after it paid out $165 million (U.S.) in bonuses to current and former employees after receiving $173 billion in U.S. government bailout money.

Now, some U.S. lawmakers are calling on Washington to halt retention bonuses for hundreds of executives at troubled mortgage giants Fannie Mae and Freddie Mac.

Toronto-based Nortel Networks Corp., meanwhile, won court rulings in both Canada and the United States yesterday that allow eight senior executives to share in an already-approved $45 million bonus pool, even as the maker of telecom gear struggles to exit bankruptcy protection.

Some of Nortel’s U.S. creditors had held up the approval process because they were seeking projections for the 2009 fiscal year, while some former employees had protested paying bonuses to senior executives when the company isn’t honouring severance payments for as many as 1,100 laid off workers.

"These are obviously well-compensated individuals that are now being paid additional millions of dollars to stay on and do the jobs they already agreed to do," said Eli Karp, a Toronto lawyer who is representing about 60 of the former Nortel employees.

"Our clients have lost their jobs and aren’t getting the severance promised to them."

Nortel, with about 30,000 global employees, including about 6,000 in Canada, stopped paying severance to former workers after it filed for protection from its creditors in mid-January with about $2.4 billion in cash on its balance sheet. It has since announced plans to shed another 3,200 workers.

But while granting big executive bonuses when a company is struggling for survival strikes many as unfair, experts argue there are legitimate reasons for providing performance-based incentives to a firm’s key personnel during a crisis.

"I think there has been an overreaction to this whole issue," said Rick Powers, executive director of MBA programs at the University of Toronto’s Rotman School of Management. "An integral part of an executive’s compensation is meeting performance targets.

"The problem is that companies have not been transparent with their compensation policies."

While Powers isn’t a fan of retention bonuses – giving employees money, in other words, simply for sticking around – he said performance-based bonuses are often a critical tool for companies mired in difficulties to align the goals of key managers with those of creditors and other stakeholders.

The key, according to Powers, is ensuring that the targets are real and achievable, and that bonuses are awarded only to employees who deliver results.

In the case of Nortel, the $45 million bonus program is to be paid out to close to 1,000 executive and mid-rung employees if certain targets are met during the company’s restructuring.

CEO Mike Zafirovski, who took home a salary of $1.3 million in 2007, the most recent year for which figures are available, is not included in Nortel’s 2009 bonus program.

But eight other senior executives, including three in Canada, could collectively receive as much as $7.3 million in bonuses if they meet cost-cutting targets and other parameters designed to make Nortel more focused, as well as achieving the approval of any restructuring plan by creditors and the courts online cash advance.

"It is important to note that the vast majority of employees at all levels are already on a quarterly incentive plan aligned to the short-term goals of company," Nortel spokesperson Mohammed Nakhooda said.

"Of those employees, we have identified a few hundred additional individuals to be part of a separate incentive program, including some executives, to ensure that key employees with specific skills and experience remain in place as we deliver on the restructuring."

Nortel did not award any bonuses to employees under its annual incentive plan for 2008.

The real rub for critics, however, is AIG.

Its bonus payouts sparked the ire of U.S. President Barack Obama, who sharply condemned management’s "recklessness and greed."

In some cases, the bonuses were paid to employees who worked in AIG’s financial unit, the same division responsible for nearly bringing the insurer down by making bad bets on derivatives.

The U.S. House of Representatives has since voted to slap a 90 per cent tax on employee bonuses at AIG and any other companies in receipt of $5 billion or more in federal bailout money.

AIG, deemed too big to fail, recently reported a fourth-quarter loss of $61.7 billion, the largest in corporate history. It has been rescued four times on the taxpayers’ dime after major missteps involving credit-default swaps.

The insurer sold those derivatives – a type of insurance on debt – to financial institutions around the world. The problem was that some of the debt securities they insured were tied into America’s hyper-vulnerable subprime mortgage market.

When the credit crunch sent the debt instruments plummeting in value last year, global banks wanted to collect on their insurance. AIG, however, did not have enough money to cover all the payouts and the U.S. government was forced to step in to prevent the insurer’s collapse.

Bonuses, to a lesser degree, have also struck a painful chord with Canadian taxpayers.

Canadian Broadcasting Corp., which is facing a budgetary shortfall, found itself embroiled in a fracas this week when it was revealed the public broadcaster still plans to pay its executives half of their annual bonuses even as it freezes their salaries in the next fiscal year.

That decision to preserve part of the executive payouts comes at a time when the Crown corporation’s rank-and-file employees are bracing for layoffs over the coming weeks.

Most regular CBC employees are not paid bonuses. Some staff, such as on-air personalities, do receive additional remuneration. Many of those employees have been informed that their bonuses will not be renewed, says the Canadian Media Guild, which represents thousands of CBC employees.

"If there is pain to be had, it has got to be equally shared by all," said guild president Lise Lareau in a telephone interview.

"We are anxious and willing and working with the CBC to do whatever is reasonable to alleviate layoffs and program cuts."

The issue of executive bonuses was reportedly raised at meetings in Ottawa yesterday between the CBC and union representatives.

CBC officials did not return calls seeking comment yesterday.

With files from the Star’s wire services

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Companies cut 697,000 jobs in the U.S. in February as the recession’s grip tightened, offering no sign the pace of the decline in payrolls is easing.

The drop in the ADP Employer Services gauge, a survey based on payroll data, was larger than economists forecast and followed a revised cut of 614,000 for the prior month.

Employers are cutting staff as demand plummets in the face of strained credit and battered housing and equity markets. The Labor Department may report in two days that employers cut payrolls in February for a 14th consecutive month, putting jobs losses in the current downturn at more than 4.2 million, according to a Bloomberg survey.

“We doubt any of these numbers have hit bottom yet,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said in a note to clients. “Employment is tanking right across the economy.”

The ADP report was forecast to show a decline of 630,000, according to the median estimate of 26 economists in a Bloomberg News survey. Projections ranged from decreases of 500,000 to 770,000.

ADP revised its methodology late last year in a bid to limit differences between its calculations and the government’s payrolls numbers.

The ADP figures include only private employment and do not take into account hiring by government agencies. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

Announcements Surge

Job cuts announced by U.S. employers more than doubled in February from a year earlier, led by planned cutbacks at retailers and automotive companies, Chicago-based placement firm Challenger, Gray & Christmas Inc. said today.

Firing announcements rose 158 percent last month from February 2008, to 186,350 car loans. The monthly total fell 23 percent from January’s seven-year high of 241,749 following the worst holiday retail sales season in four decades, Challenger said.

Today’s ADP report showed a reduction of 338,000 workers in goods-producing industries including manufacturers and construction companies. Employment in manufacturing dropped by 219,000. Service providers cut 359,000 workers.

Companies employing more than 499 people shrank their workforces by 121,000 jobs. Medium-sized businesses, with 50 to 499 employees, cut 314,000 jobs and small companies decreased payrolls by 262,000.

GM Crisis

General Motors Corp. was among companies cutting staff. On Feb. 18 the Detroit-based automaker said it planned to cut an additional 47,000 workers worldwide and needed an additional $16.6 billion in new federal loans to keep operating while it restructures its operations to avoid bankruptcy.

Caterpillar Inc., the world’s largest maker of earth-moving machinery, said Feb. 11 it was offering a voluntary retirement package to about 2,000 U.S. production employees, in addition to more than 22,100 announced dismissals.

“Depending on business conditions, more voluntary and involuntary workforce reductions may be required as the year unfolds,” the Peoria, Illinois-based company said in a statement.

The ADP report is based on data from 400,000 businesses with about 24 million workers on payrolls.

ADP began keeping records in January 2001 and started publishing its numbers in 2006.

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Centrue Financial Corp. cut its dividend in half to 7 cents per share as it announced a $1.6 million loss for the fourth quarter of 2008.

The loss of 27 cents per share in the quarter compares with a profit of 49 cents per share, or $3.1 million, a year earlier. Revenue was $10.5 million, down 24 percent from 13.8 million a year ago.

The St. Louis-based company, parent of Centrue Bank, added $5 payday loans for bad credit.2 million to its reserve for possible loan losses. About $850,000 of that reflected a loss the company blamed on fraud by an unnamed Illinois customer. Centrue also took a $2.7 million impairment charge to reflect the lower value of its investment securities.

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As the U.S. government nears a deal to save General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), a debate rages over whether Chief Executive Rick Wagoner’s job should be spared in the bailout or its most visible symbol of shared sacrifice.

With pressure mounting on Wagoner to step aside, GM on Tuesday asked its white-collar employees to add their names to a petition of support to be forwarded to the U.S. Senate.

U.S. Sen. Christopher Dodd, a Connecticut Democrat, touched off the latest controversy over Wagoner’s role at the top U.S. automaker when he said on Sunday Wagoner should step aside as Congress weighs a $15 billion industry rescue.

But with the steady backing of GM’s board, Wagoner has faced down previous threats to his leadership, including one in early 2006 as GM’s sales began to sputter and losses mounted.

Now, with GM at the brink of collapse, Wagoner’s allies have rallied to his defense and argue switching management now would risk deepening the crisis for a fragile industry.

Lee Iacocca, made famous as the CEO who steered Chrysler through a turnaround on the strength of $1.5 billion in federal loans in the early 1980s, endorsed Wagoner and his peers at Chrysler LLC and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) in a statement on Tuesday.

“They’re by far the best shot we have for success. I say give them their marching orders and then let them march. They’re the right people to get the job done,” Iacocca said.

Tim Leuliette, chief executive of auto supply firm Dura Automotive Systems, said calls for management changes could make a bad situation worse.

“The refueling plane is poised to link up mid-air and give them jet fuel, but the guys on the ground are calling for a change in pilots before the planes link up,” he said car insurance quotes.

CRITICS LINE UP

Critics, including governance experts, are unmoved by defenses of Wagoner, Detroit’s longest-serving CEO, who ascended to the top spot at GM in 2000.

Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) CEO Alan Mulally joined that company in 2006 from Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz). Bob Nardelli, controversial for a $210 million severance package from the top job at Home Depot (HD.N: Quote, Profile, Research, Stock Buzz), was named Chrysler CEO in 2007.

“I just find it very perplexing,” said Jonathan Macey, a Yale law professor who has studied the failures of corporate boards. “Clearly, changes have to be made in these auto companies to make them competitive. It’s also clear that Wagoner’s not the right person for the job.”

Others see GM’s slide toward failure under Wagoner’s tenure as sufficient grounds to oust him and to shake up a complacent board that has failed in its role as watchdog. Eight of the 13 directors on GM’s board have served with Wagoner since 2003.

“I think the removal of the CEO has to be part of the picture,” said David Allon, portfolio manager at Firstrust Financial Resources in Philadelphia, who owns GM preferred stock. “I think the board has to recognize that Wagoner is in a self-preservation mentality.” 

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KUWAIT CITY – Kuwait's Central Bank stepped in Sunday to prop up one of the country's biggest banks and said it was considering guaranteeing deposits in domestic banks – in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.

In Saudi Arabia, meanwhile, the government said it would deposit $2.7 billion into the Saudi Credit Bank to help lower-income citizens deal with financial difficulties, the country's Al-Ektisadiya newspaper reported.

The two moves came just a day after finance ministers from the six-nation Gulf Cooperation Council held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region's banks face no liquidity crisis.

Kuwait's decision to stop trading in shares of Gulf Bank sent a shock wave through the country's bourse, which closed down almost 3.5 per cent and brought its year-to-date losses to over 19 per cent.

"The halting of Gulf Bank shares spread panic in the bourse today, because the government has been saying banks are safe from (global financial crisis) losses," said investor Ahmed al-Fadhli in a telephone interview.

The central bank order said trading in Gulf Bank shares would be suspended pending an investigation into the derivatives deals that caused the losses. The bourse's statement said some investors had balked at covering their losses, but neither the central bank nor Gulf Bank indicated the scope or timeframe of the bank's losses.

But one banking official with access to the information estimated the bank's losses at up to $749 million. The official spoke on condition of anonymity because of the sensitivity of the issue.

Over the past few weeks, Kuwaiti investors have voiced clear concerns about the market. One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.

Investor al-Fadhli said about 40 brokers walked Sunday from the exchange to the nearby seaside Seif Palace, demanding to see the prime minister, Sheik Nasser Al Mohammed Al Sabah, to ask for more government intervention.

The Gulf Bank news further fuelled market turbulence in the broader GCC, not just in Kuwait, a tiny country which is far more dependent on oil revenue than many of its other Gulf counterparts.

Oman's stock exchange was down about 8.29 per cent while Qatar's exchange was off almost 9 per cent. Saudi's benchmark Tadawul index was down a moderate 3.06 per cent, a day after plummeting over 8 per cent.

Sunday is a normal business day in the Arab Mideast, which usually observes Friday as the weekend no teletrack payday loans.

So far, the Gulf countries have been thought to be protected from the crisis, in part because of the cushion of oil money many of them have built up during years of high oil prices. However, because most of the region's banking sector is privately held, not much is known about the institutions' true risk exposure levels.

The Gulf Bank news also appeared to have pushed the Kuwaiti government to take a step it has so far resisted – guaranteeing deposits. The country currently makes no deposit guarantees.

The central bank said it would propose an urgent bill to guarantee bank deposits in an effort to "boost confidence in our banking sector and enhance its ability to compete with banks in countries where deposits were guaranteed by the state" but gave few details on specifics.

The guarantee would cover local Kuwaiti banks.

The various Gulf countries have taken a range of measures to maintain market confidence, including cutting interest rates and pumping billions into their economies.

In tandem, officials have repeatedly said the region is not exposed to the kind of toxic debt that has led to massive losses in the United States and spread to other global markets.

But the move to deposit funds in the Saudi Credit Bank, to be used interest-free by lower-income Saudis, showed the push many of the GCC countries were undertaking to ensure that their citizens are not affected by the current international crisis.

Much of that effort is funded by the countries' massive cash surpluses, accrued from oil wealth. But with crude prices falling, analysts say some spending may be curtailed.

The draft bill to guarantee deposits could prove to be the necessary catalyst for stability, analysts said.

But some, including independent financial analyst Ali al-Nimesh, have criticized demands to stop trading, arguing that such a step was counterproductive and unnecessary since the daily losses have not exceeded 4 per cent, compared to a more than 8 per cent drop in the benchmark Saudi Tadawul index on Saturday, for example.

"Unfortunately, Kuwaitis have been used to demanding help and getting it … and parliament has played a negative role in this," al-Nimesh said.

Legislators have passed pay hikes and set up a state fund to buy bad consumer debts despite strong Cabinet opposition.

The government believes oil revenues should be used for development instead of "popular" demands that do not take into consideration that oil prices might fall sharply, dragging down state revenues in tow.

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Asian and European leaders closed ranks on Saturday to try to bolster the confidence of shell-shocked investors fearful that the year-long global credit crunch is mutating into a worldwide recession.

Poor economic data around the world and another international barrage of corporate profit warnings and job cuts triggered a brutal sell-off in stocks from Tokyo to New York.

“The danger of a collapse (on financial markets) is far from over. Any all-clear would be wrong,” German Finance Minister Peer Steinbrueck said in an interview released on Saturday.

“We are still in a dangerous situation. I am not going to mislead anyone and say: we have got everything under control,” he told Bild am Sonntag newspaper.

The worries of political leaders were mirrored in the markets how to get a free credit report.

Seventy-nine years to the day after the 1929 crash that ushered in the Great Depression, currencies experienced extreme volatility, while oil and other commodities tumbled on fears of plummeting demand that would accompany a slowdown.

Many analysts declared that Europe was in recession after private-sector activity in the euro zone’s economy contracted at the fastest pace in at least a decade and Britain’s economy shrank 0.5 percent in the third quarter, much more than expected.

“The euro area has entered a deep recessionary spiral,” said Aurelio Maccario, chief euro zone economist at Italian bank UniCredit. 

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The Canadian dollar suffered its biggest one-day drop in almost 38 years and oil slid below $78 (U.S.) a barrel yesterday as investors continued panic selling across the board on global markets.

"The dollar is in free fall along with commodity prices," said Sal Guatieri, senior economist at BMO Capital Markets.

"It’s ongoing fear that we’re heading for a global recession, and probably a deep one," he said.

When all was said and done, the S&P/TSX composite index shaved another stunning 535.02 points to close at 9065.16 for a loss of 16 per cent this week.

The Dow Jones industrial average, down nearly 700 points at one point in trading, lost 128 points to close at 8,451.19, rounding out its worst week ever.

"This is unprecedented. We don’t know when it’s going to end," said Guatieri.

"This could be a repeat of the early 1980s. It was pretty bleak for years."

Kate Warne, Canadian market specialist at Edward Jones in St. Louis, said emotions are driving behaviour in the market.

"Typically, we don’t see this kind of fear-based selling continue day after day like we’ve seen so far, but no one knows what the catalyst will be to turn sentiment around," Warne said.

"It’s very difficult to see what will change that, but we know historically it changes quite quickly and that what you tend to see is the emotions swing in the other direction just as dramatically as it’s been on the fear side so far."

As brutal as the markets looked though, most Canadians had their eyes on the ailing loonie, which at one point plunged almost five cents – its biggest drop ever – before settling halfway back.

It closed down 2.59 cents (U.S.) to 84.69 cents. The loonie has lost 7.77 cents, or 8.4 per cent, this past week alone as the U.S. dollar strengthens and as investors continue to bail out of the market on continued fears of economic instability.

"The prospects for the global economy seem to be dwindling fast and, as a result, the prospects for commodity markets are also ebbing and that’s weighing very heavily on the dollar," said Michael Gregory, senior economist at BMO Capital Markets.

"Even China, the engine of global growth, cut interest rates this week hoping to stave off lower growth there. The prospects are looking quite dim for commodities."

And the collapse in oil markets accelerated yesterday as investors grew more pessimistic about a mushrooming global crisis.

Light, sweet crude for November delivery fell $8.63 to settle at $77.99 a barrel on the New York Mercantile Exchange.

Even gold, normally the safe haven in times of turmoil, didn’t escape unscathed, falling $27.70 to close at $855.40 in New York as investors sold the metal to cover losses in the equity markets.

With files from The Canadian Press

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