IMF Sees China Growth Halved

Benchmark U.S. crude briefly rose above $50 a barrel in morning trade.

The International Monetary Fund said on Monday Chinese growth could be cut almost in half next year while eyes across the globe looked to Washington for signs on whether it would bail out the U.S. auto industry.

The IMF warning added to a flurry of evidence that a global downturn may last through next year: Japan reported its sharpest crash in business sentiment in three decades, China said its industrial output grew at the slowest pace since 1999, and diversified manufacturer Honeywell International Inc warned that 2009 profit could fall 16 percent.

On the financial front, more companies acknowledged exposure to the alleged $50 billion Wall Street fraud by Bernard Madoff, including Britain's HSBC Holdings Plc, Royal Bank of Scotland and Man Group, Japan's Nomura Holdings and France's Natixis SA. No major U.S. banks have said they were exposed.

Less than two weeks from Christmas, bad news on U.S. consumers continued to trickle in. While sales for the key holiday might not drop as much as retailers feared, experts say households are likely to cut back even more after Christmas.

Bucking the dour trend was U.S. industrial production in November, which slipped by a less-than-expected 0.6 percent, and revised figures for October that were stronger than previously thought.

On the housing front, U.S. home builder sentiment held steady in December, but remained at a record low, reflecting the economic turmoil and heavy job losses.

U.S. government-controlled mortgage finance company Fannie Mae gave some relief on Monday by allowing tenants whose landlords go into foreclosure to remain in their homes and avoid eviction.

As Americans looked to the government for more help, U.S. House of Representatives Speaker Nancy Pelosi said a pending economic stimulus package could cost around $600 billion and include large infrastructure investments and tax cuts.

The gloomy prospects for 2009 pushed U.S. and European markets lower. U.S. stocks were dragged down, mostly by banks on fears over upcoming earnings reports and fallout from the Madoff fraud.

"It's a psychological blow to most investors to see such a destruction of wealth based on fraud," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.

U.S. RATE CUT EXPECTED

Investor attention will turn to Tuesday, when the U.S. Federal Reserve is expected to cut rates to close to zero, Goldman Sachs could report its first quarterly loss as a publicly traded company and the CEO of corporate bellwether General Electric, Jeff Immelt, briefs Wall Street on the company's 2009 outlook.

Energy stocks provided strength Monday on expectations that OPEC will make its deepest cut ever in production at a meeting this week in Algeria.

But benchmark U.S. crude fell more than 2 percent as the deepening economic worries more than offset the prospect of the OPEC cutback lifting prices.

International Monetary Fund Managing Director Dominique Strauss-Kahn told a conference that growth in China, the world's fourth-biggest economy and accustomed to double-digit growth rates, could fall to 5 percent next year from 9.7 percent this year.

"We started with China at 11 percent growth, then 8, then 7, then China will probably grow at 5 or 6 percent," he told a conference in Madrid.

Strauss-Kahn said a large and diversified stimulus of about 2 percent of world GDP -- $1.2 trillion -- was needed to reduce the risk of a damaging global recession.

"If we are not able to do that, then social unrest may happen in many places, including advanced economies," he said.

China in particular fears unrest if growth falls below the 8 percent it says it needs to create enough jobs for the millions of people moving to cities from the countryside.

"Next year's employment market will be very serious, affected by the international financial crisis," Xinhua quoted Chinese President Hu Jintao as saying.

A Bank of Japan survey gauging manufacturers' sentiment showed the biggest fall since the oil crises of the 1970s and the bleakest outlook since 2002.

CARMAKER WARNINGS

President George W. Bush told reporters aboard Air Force One on Monday that while some funds earmarked to shore up the U.S. finance industry could be diverted to automakers, no announcement was imminent.

U.S. Senate Banking Committee chairman Chris Dodd said later in the day he was confident the government would help the hardest-hit car companies, GM and Chrysler LLC, with bridge loans to get through the next months.

"These companies are burning through cash at an incredible rate," Dodd said at a conference in Dublin.

Investors fear that a failure of any of the Big Three Detroit automakers would exacerbate a U.S. recession and drag other companies under. U.S. Treasury Department officials were still reviewing information from the auto industry and no decisions had been made yet about a rescue, according to a spokeswoman.

Manufacturing is taking it on the chin as well. In Sweden, Electrolux, the world's second-biggest home appliances maker, said it would cut more than 3,000 jobs, and Honeywell is bracing for economy contraction.

"We're clearly planning for a tough economic environment in '09 with negative growth in the U.S. and Europe and moderating growth in the key emerging regions," said Dave Anderson, chief financial officer.