REUTERS/Yuriko Nakao
By Keith Weir and Yoko Nishikawa
LONDON/TOKYO (Reuters) - Germany has fallen into recession and China industry output growth dropped to its lowest in seven years, data showed on Thursday, reinforcing fears the financial crisis is plunging the world into a painful downturn.
Seeking to limit the fallout from a crisis which began when the U.S. housing market collapsed, Japan said it would offer up to $100 billion to the International Monetary Fund (IMF) for emerging economies.
The impact of the worst financial conditions in 80 years was felt sharply in Germany, Europe's largest economy, where the economy contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.
The decline was accentuated by a negative contribution from foreign trade as exports weakened.
"The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy," said Carsten Brzeski of ING Financial Markets.
"Even more worrying, the full impact of the financial crisis still has to unfold," he said. "If you think today's numbers are already bad, just wait for the next quarter."
China, which has unveiled a 4 trillion yuan ($586 billion) stimulus package, also felt the ill effects of a global slowdown, with annual industrial output growth slumping to 8.2 percent in October, its weakest showing since October 2001.
Stock markets tumbled in Asia and Europe, spooked by worries that massive capital injections and emergency regulatory measures have failed to halt damage to the real economy.
Following a Wall Street sell-off that sent the Nasdaq to a 5-year low, Tokyo shares slid 5.3 percent and the price of oil fell to a 22-month low at $55 a barrel on worries that a recession will curb demand.
China was a rare bright spot, shares ending up 3.7 percent on hopes that the stimulus package would include big spending on housing and railway construction.
Shares in Europe fell 0.5 percent in early trade.
In a bid to bolster stocks, Australia moved to impose a permanent ban on so-called naked short-selling, the practice whereby hedge funds sell shares they neither own nor have borrowed in the hope of quickly buying them back at a discount.
G20 SUMMIT
Governments around the world have pledged around $4.6 trillion for bank bailouts, credit guarantees and fiscal spending to contain the damage from the financial turmoil.
Leaders of the G20 industrialised and emerging nations will gather in Washington on Friday to decide on the next steps in tackling the crisis.
Japan is prepared to offer foreign reserves worth up to $100 billion to the IMF if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.
Prime Minister Taro Aso will make the proposal at the G20 summit, the source told Reuters.
"Investors are now looking to the G20 Summit this weekend, with hopes of some further policy action," Patrick Bennett, Asia FX and rates strategist at Societe Generale, wrote in a note.
However, the summit falls at an awkward time politically as U.S. President George W.Bush prepares to leave office.
Bush plans to call for fixing the problems rather than dismantling the existing system, the White House said.
Bush will travel to Wall Street on Thursday to outline his views on the financial markets.
"We should fix the problems we have rather than dismantle a system that has improved the lives of hundreds of millions of people around the world," White House spokesman Carlton Carroll said in previewing Bush's remarks.
Some leaders have called for big reforms to the financial system, but the Bush administration has been more cautious.
The president will "emphasize that free market capitalism -- especially free trade -- is still the best system to create economic growth and lift people out of poverty," Carroll said.
Washington has backed away from using a $700 billion bailout fund to cleanse bank balance sheets of bad mortgage debt.
U.S. Treasury Secretary Henry Paulson said he preferred instead to focus on buying stakes in banks to encourage them to increase lending.
(Additional reporting by Reuters bureaux worldwide; Editing by Mike Peacock)
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