Japan banks seek funds as U.S. carmakers plead

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By Mike Peacock

LONDON (Reuters) - Japan's No.3 bank sought to beef up its capital on Wednesday, markets fretted over the stricken U.S. car industry and Britain's central bank said it considered cutting rates even more dramatically than it did this month.

European Central Bank President Jean-Claude Trichet said the deep financial crisis marked the first time since World War Two that the finances of the industrial world have been at stake.

He said the situation could be solved by joint efforts of central banks and governments, with a key role for the private sector, but declined to be drawn out on how long it would take.

"It will take time, but we have to all be up to our responsibilities in a difficult episode," Trichet told Sky Television late on Tuesday.

The Bank of England seemed to share his view.

Minutes of its last meeting, when it cut interest rates by a shock 1.5 percentage points, showed it considered an even bigger reduction to tackle a recession that has now been confirmed.

The Organization for Economic Cooperation and Development said Spain's economy would shrink by 0.9 percent next year due to falls in housebuilding and consumer spending.

The 15-nation euro zone, of which Spain is part, is already in recession.

JAPAN BANKS STRUGGLE

Japan's third-largest bank, Sumitomo Mitsui Financial Group, said it planned to raise at least $2.9 billion in an issue of preferred securities to beef up a capital base rocked by rising bad loans.

Once thought to be relatively unharmed by the global credit crisis, Japanese banks are now scrambling to raise cash as recession and plunging domestic stocks sap their capital.

The head of Nomura Holdings Inc, Japan's biggest brokerage, offered a glimmer of hope, saying he thought the global liquidity crisis was over.

But he said the world's real economy was now the problem.

"The next issue depends on how the nations of the world supply financial support," particularly in China, Nomura Chief Executive Kenichi Watanabe told a media lunch.

Authorities worldwide have recapitalized banks, thrown funds into frozen money markets and acted to revive their economies, at a cost approaching $5 trillion -- a process that continues.

Russia's central bank said it had sold $57.5 billion of its reserves over the last two months to defend the rouble and contributed $14 billion to a government bank bailout programme.

The four Nordic countries said on Wednesday they had agreed a $2.5 billion loan for Iceland, suffering a financial meltdown which prompted the failure of three top banks.

Central banks have also weighed in with a slew of rate cuts.

The Federal Reserve is widely expected to cut rates to 0.5 percent in December, what would be the lowest level since the 1950s, as it attempts to revive the U.S. economy.

After the Bank of England minutes, analysts forecast more big reductions to come in the UK too.

"Monetary policy boring? Clearly not any more," said Marc Ostwald, bond analyst at Monument Securities in London.

"The fact that they considered 200 basis points at this month's meeting will surely trigger a shift in market expectations for December to a 100 basis points cut."

British Land, the UK's second-largest real estate firm, said its property portfolio had plummeted by 10.8 percent in value in its first half.

Marks & Spencer and Debenhams, two of Britain's biggest retailers, will this week hold pre-Christmas sales to stimulate trade after a tough October.

CARMAKER BAILOUT

Stocks slid as a plea from U.S. automakers for a bailout met political opposition and prospects of a deep global recession continued to rattle investors -- Japan's Nikkei slipped 0.7 percent and European shares fell 1.2 percent.

"There's a lot of worry about the possible bailout of the Big Three carmakers in the U.S., since it doesn't seem to be coming together well at all," said Katsuhiko Kodama, a senior strategist at Toyo Securities.

The "Big Three" warned the U.S. Senate Banking Committee on Tuesday of dire consequences if no help was forthcoming.

"This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse," General Motors Corp CEO Rick Wagoner said in written testimony.

Senate Democrats have proposed offering $25 billion in loans to an industry devastated by a collapse in consumer spending triggered by the U.S. housing crash and now rising unemployment.

Auto makers in Europe and Japan are also under pressure.

The EU is studying support for its carmakers and signaled support for a German offer to help the Opel unit of GM. But others said there could be no special treatment.

Toyota said it would stop production at U.S. and Canadian factories for two extra days next month and Nissan warned of more tough times ahead.

"We have to recognize 2009 will be one of the most challenging years for our industry and the whole economy in the last 50 years," CEO Carlos Ghosn told the Wall Street Journal.

(Editing by Ralph Boulton)

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