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U.S. vows more help for AIG, China enacts stimulus
2008-11-10
NEW YORK (Reuters) - The United States pledged more support for struggling insurer AIG on Monday, a day after China announced a $586 billion plan to stimulate domestic demand, as world governments took new action to battle the global financial crisis. The activism helped temper the gloom that swept through Japan and emerging market nations after Japanese manufacturers reported their biggest quarterly slump in machinery orders in a decade and ratings agency Fitch cut Romania's credit rating to "junk" status in one of four emerging market downgrades. Fitch said the global financial crisis had also put the ratings of South Korea, South Africa, Russia and Mexico in jeopardy, and it cut the ratings for Bulgaria, Kazakhstan and Hungary. Central bankers meeting in Brazil vowed to remain vigilant while also warning there was no single solution that could be applied across borders. China announced a 4 trillion yuan ($586 billion) spending package on Sunday to boost domestic demand in the world's fourth-largest economy. Some analysts warned it might not be as large as advertised. But it still led to an early rally on Wall Street that turned negative in the face of a steady stream of bad news for U.S. companies. In a sign the American consumer is not ready to bail out the economy, No. 2 electronics retailer Circuit City Stores Inc filed for bankruptcy protection. General Motors stock tumbled more than 20 percent after analysts downgraded the top American carmaker. Separately, DHL Worldwide Express BV, a unit of Germany's Deutsche Post, announced it was shutting down its U.S. domestic delivery service and cutting 9,500 jobs. China's action came on top of more than $4 trillion in government pledges around the world for bank bailouts, credit guarantees and fiscal spending to contain the damage from the worst financial turmoil in 80 years. "Part of what we've been concerned about as we look at this global recession was what was China's response going to be," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston. "We believe China is standing firmly behind their economy and that's going to help." The Dow and the S&P turned negative after rising more than 1 percent in opening trade. European stocks closed 0.9 percent higher after Tokyo shares gained close to 6 percent. MORE HELP FOR AIG The United States, where a housing market collapse triggered the crisis, has set aside $700 billion for rescuing financial institutions, and some of that money will be used in the revised rescue plan for insurer American International Group Inc. AIG's troubles started when big bets it took on guaranteed mortgage-backed debt soured with the collapse of the U.S. housing market. Only a government rescue on September 16 saved it from bankruptcy. The U.S. Federal Reserve increased its support for AIG to about $150 billion, some $27 billion more than it extended previously, after the initial bailout attempt failed to stem massive losses. President-elect Barack Obama is expected to spend many billions more in a fiscal stimulus package after he takes power on January 20. Obama will visit the White House on Monday to receive a tour from outgoing President George W. Bush. European banks remained under stress with Spain's Santander launching a surprise $9.2 billion rights issue as the financially strong bank joined ailing rivals in bolstering their capital. Jean-Claude Juncker, chairman of the Eurogroup of euro zone finance ministers, said European banks had not resumed lending as much as leaders had hoped when they launched measures to shore up the financial system. "They are reacting, yes, but they are not reacting with the drive that we were imagining when we had the support plans," said Juncker, who is also prime minister of Luxembourg. Interbank lending seized up more than a year ago, although the credit markets have stabilized in recent weeks. Europe's biggest bank, HSBC Holdings, reported profit growth but warned of tough times ahead. German's Dresdner Bank, a unit of insurer Allianz, posted its biggest quarterly loss since the start of the crisis, pushing the group to a 2 billion euro ($2.56 billion) net loss. A G20 meeting in Brazil produced assurances there would be no let-up in efforts to revive the world economy but specific action would more likely come from a crisis summit of world leaders later this week in Washington. (Reporting by Reuters bureaus around the world; Editing by Steve Orlofsky)
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