US Sheds More Jobs, Central Banks Set To Cut Rates

Fear of a prolonged global recession also sparked a new round of deep interest rate cuts, with Thailand leading the way.

Private U.S. employers slashed the most jobs in seven years in November as the economy went into a "free fall," while Britain pledged on Wednesday more power for its central bank to regulate banks and protect depositors.

Fear of a prolonged global recession also sparked a new round of deep interest rate cuts, with Thailand leading the way on Wednesday and central banks in Europe, Britain, Sweden and New Zealand expected to follow in the days ahead.

ADP Employer Services said Wednesday that U.S. private employers cut 250,000 jobs last month, suggesting Friday's more comprehensive government report that includes public sector jobs could show losses in excess of 300,000. That would be the highest since the recession earlier this decade.

Separate reports showed the pace of U.S. productivity slowed while a closely watched gauge of the vast U.S. services sector slumped to a record low.

"The fourth quarter of 2008 is experiencing an economic free fall," said Richard Dekaser, chief economist at National City Corp in Cleveland. "We haven't this kind of a collapse in a very long time."

On Monday, the National Bureau of Economic Research, a private research group considered the official arbiter of recessions, said the U.S. economy entered recession in December 2007. Economists said it will likely stay there through the middle of 2009.

In London, British Prime Minister Gordon Brown, in a legislative program set out in the traditional speech to parliament by Queen Elizabeth, said he would focus on easing the pain of the looming recession with laws to protect savers and prevent banks suffering funding crises.

Britain plans to give the Bank of England powers to step in as soon as a bank begins to show signs of financial trouble.

"The strength of the financial sector is vital to the future vibrancy of the economy," the Queen said in the speech.

SERVICES SLUMP, RATE CUTS ON TAP

Both the Bank of England and the European Central Bank are under pressure to reduce interest rates sharply this week after surveys showing the UK and euro-zone service sectors fell deeper into recession in November than first thought.

The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars in the euro zone, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.

"There is ample room for the ECB to cut rates. We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points," said Juergen Michels at Citigroup.

The equivalent survey for Britain showed its dominant services sector shrank in November at its fastest pace since the series began in 1996, boosting expectations the Bank of England will slash interest rates by a full point on Thursday.

The U.S. Institute of Supply Managers reported its non-manufacturing index fell to a record low of 37.3 in November from 44.4 the prior month. A level below 50 indicates contraction and all major components of the index were the lowest since the survey started in the mid-1990s.

The Bank of Thailand slashed its main interest rate for the first time in 16 months to help an economy hit by the global crisis and political unrest. It cut 100 basis points, the biggest reduction in eight years, to 2.75 percent.

Australia cut rates on Tuesday while the euro zone, Britain, Sweden and New Zealand will make decisions on Thursday.

The Federal Reserve, which is expected to cut U.S. rates again later this month, will release its closely watched Beige Book of economic conditions later in the day.

Financial markets rose, with U.S benchmark S&P 500 rising more than 1 percent led by defensive shares such as Coca-Cola, while the FTSEurofirst 300 index of top European shares was flat.

CHINA COOL ON AID, US AUTO SECTOR IN FOCUS

The Wall Street Journal reported U.S. Treasury Secretary Henry Paulson might approach Congress next week to ask for the second half of a $700 billion bank rescue package.

Paulson was on his way to Beijing to talk to Chinese officials. He may not receive big promises of further investment, especially from China's sovereign wealth fund.

The chairman of China Investment Corp said the sovereign wealth fund was "not brave enough" to invest in foreign financial firms and lacked confidence in the shifting U.S. financial regulatory terrain.

"It's changing every week. How can I be confident?," CIC chairman Lou Jiwei said in Hong Kong.

The Chinese government said it would make use of required reserves as well as interest rates and the exchange rate to ensure ample liquidity in the country's banking system.

The Chinese State Council also approved measures aimed at stabilizing the battered domestic stock market, boosting bond issuance and increasing the supply of credit.

Elsewhere, U.S automakers prepared to plead the case to Congress that they had a viable future. Ford Motor Co wants a $9 billion credit line. General Motors Corp asked the U.S. government to save it from failure by extending $12 billion in loans and another $6 billion in a credit line.

U.S. politicians worry that without government aid, the companies could collapse and millions of jobs would be lost.

In Seoul, the Bank of Korea discussed buying more bonds off banks hard hit by the credit crunch and easing rules on how much cash they must keep in reserve.