US business outlook weakening

New York: Grim reports showing American consumers tightening their belts and the US business outlook weakening deepened fears about global recession, while a Japanese rate cut on Friday did little to stem the bleeding.

British banking giant Barclays said it was raising $12 billion (Dh44 billion) in capital, the latest move in the troubled world financial sector, which has been drastically reshaped by the crisis stemming from the bursting of the US housing bubble.

A US Commerce Department report showed consumers cut monthly spending for the first time in two years in September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.

Another survey showed US consumer confidence in October suffered its steepest monthly drop on record.

"Consumers reported the most dismal assessments of their current fin-ancial situation ever recorded," the Reuters/University of Michigan Surveys of Consumers said.

Hopeful sign

But there was at least one hopeful sign, as the closely watched interbank lending rates fell, suggesting that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.

That helped push US stocks higher, with financial stocks leading a rally as investors picked up bargains following recent heavy losses. European shares reversed losses and followed Wall Street higher.

Nevertheless, the Dow Jones Industrial average in October had its worst one-month percentage drop since August 1998, while the dollar was on pace for its best month in more than 17 years.

The Bank of Japan cut interest rates for the first time in seven years on Friday in a move that followed a rate cut by the US Federal Reserve on Wednesday. The European Central Bank and the Bank of England are expected to do the same this week.

In the euro zone, inflation fell to 3.2 per cent year-on-year in October, data that was likely to ease any concerns at the ECB about rising prices.

The economy is dominating the final days of the US presidential campaign, which pits Republican John McCain against Democrat Barack Obama on Tuesday.

US Treasury Secretary Henry Paulson has been in regular contact with both McCain and Obama during the implementation of the Treasury's $700 billion financial rescue plan, a Treasury spokeswoman said on Friday.

When the winner takes office in January, he will face the daunting task of overcoming the worst financial crisis in 80 years and guiding a $700 billion bailout that includes $250 billion of cash injections for banks.

Meanwhile, fallout from the crunch continued to spread, with Barclays saying it planned to raise £7.3 billion ($12.06 billion) in additional capital from outside investors, including Qatar and Abu Dhabi.

Barclays had said earlier it wanted to raise capital but would raise it privately rather than take UK government cash, as rivals Royal Bank of Scotland, Lloyds and HBOS are doing.

Germany's Commerz-bank is interested in a state capital injection, according to sources familiar with the situation.

Japan's two largest banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group, cut their earnings outlooks by more than half on on Friday, hit by bad-loan costs and a plunging stock market.

The economies of Britain, Europe, Canada, Japan and the US are contracting.

A German government official told Reuters the economy contracted for a second consecutive quarter from July-September.