Japanese exports, weak U.S. earnings hit markets again

By Claudia Parsons

NEW YORK (Reuters) - Weak Japanese export data, bleak outlooks from carmakers and news of job cuts at Goldman Sachs and Chrysler deepened fears of an extended global recession and sent most markets lower again on Thursday.

Sweden and New Zealand responded to the worldwide financial crisis by cutting interest rates. Investor flight from emerging economies, a number of which looked set to seek help from the International Monetary Fund, compounded market anxiety.

U.S. stocks struggled to stay positive after major indexes hit a five-year lows on Wednesday. More bad company news on Thursday showed the breadth of the slowdown, which has hit profits from banks to chemical makers to hotels.

"The market is coming to grips, after being in denial for so long, with a global recession," said Barry Ritholtz, director of equity research at Fusion IQ in New York.

Japanese exports grew only 1.5 percent in September from a year earlier, well short of forecasts, prompting worries that the world's second-biggest economy is heading into recession and renewing speculation of a rate cut.

A dive in car shipments to the United States and slowing demand from emerging economies hurt Japanese exports. Sony Corp

slashed its operating profit forecast, citing reduced demand for flat TVs and digital cameras.

Italy's Fiat, Germany's Daimler and South Korea's Hyundai Motor Co added to the gloom among automakers with bleak 2009 forecasts.

U.S. carmaker Chrysler LLC said that it was closing one assembly plant early and eliminating a shift at another, resulting in 1,825 job cuts.

General Motors Corp said it was taking steps to preserve its cash, temporarily suspending its company match for its 401(k) retirement savings program and assessing staffing levels. The Wall Street Journal reported that the company was planning to begin involuntary layoffs of salaried workers.

New York-based bank Goldman Sachs Group Inc plans to cut nearly 3,300 jobs, or around 10 percent of staff, a source familiar with the matter said on Thursday.

RATE CUTS

The dollar and the yen continued to surge. The dollar rose to two-year highs against the euro and a basket of other currencies as falling shares highlighted recession fears and encouraged investors to further cut exposure to risk. The low-yielding yen reached a six-year high against the euro.

"It's a fast-moving market, and in general, risk aversion is high," said Tom Levinson, currency strategist at ING.

Sweden, which joined the U.S. Federal Reserve and others in coordinated cuts two weeks ago, lowered its key interest rate by 50 basis points and signaled more to come.

New Zealand cut rates by a record one percentage point and also hinted at more reductions.

Bank of England Governor Mervyn King said Britain too was ready to lower interest rates again after warning this week the country was probably entering its first recession in 16 years.

The central banks of Brazil and Norway acted to boost liquidity on Thursday, and Canada said the government would guarantee borrowing from the nation's banks.

Central banks worldwide are trying to limit the damage from the worst financial crisis since the Great Depression.

Economists say the effects of the financial crisis set off by a U.S. housing market collapse 15 months ago are only now starting to be felt by businesses, even as credit flows start to unfreeze as banks begin lending to each other again.

"Clearly, in spite of the fact that the global banking system was saved by government recapitalization and guarantees, crisis in the real economy is still deepening and will have to play out in several quarters of negative growth," said Dariusz Kowalczyk with CFC Seymour in Hong Kong.

Asian stocks fell to a four-year low and the FTSEurofirst 300 index of top European shares shed 2 percent.

U.S. stocks were mainly higher after two days of steep losses. The Dow and the S&P 500 rose about half a percent in early trade, while Nasdaq was lower.

Among companies posting lower profits were Dow Chemical Co

and Starwood Hotels, the operator of Sheraton, W and St. Regis brands.

Oil edged higher ahead of an emergency meeting of the Organization of the Petroleum Exporting Countries in Vienna on Friday when ministers will consider a supply cut.

The interbank cost of borrowing longer-dated dollars rose on Thursday for the first time since governments detailed a raft of bank bailout measures earlier this month as worries about the economic downturn deepened.

The cost to insure against sovereign debt default in countries such as South Korea, Indonesia, the Philippines, Russia and Kazakhstan has soared over the past two days -- a sign investors are increasingly reluctant to leave their money in once buoyant emerging markets.

Authorities around the world have committed nearly $4 trillion in a variety of plans including deposit and debt guarantees and taking stakes in struggling banks.

Seeking to ease the strain on the housing market, the U.S. administration is considering a roughly $40 billion plan to help stop foreclosures, the Wall Street Journal reported.

U.S. foreclosure activity in September rose 21 percent from a year earlier, research firm RealtyTrac said.

Chinese premier Wen Jiabao said the world's most populous nation could stimulate domestic demand to help overcome slowing growth -- a move which would benefit exporters to China.

A growing number of countries are turning to the IMF for help, including Iceland, Hungary, Belarus and Ukraine.

(Reporting by Reuters bureaus worldwide; Editing Steve Orlofsky)