Japan banks and U.S. carmakers seek funds

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By Mike Peacock

LONDON (Reuters) - China has told police to ensure stability as its economy slows, Japan's No.3 bank sought to beef up its depleted capital on Wednesday and markets fretted about the stricken U.S. car industry.

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 it could be solved by central banks and governments in concert, with a key role for the private sector, but told Sky Television late on Tuesday: "It will take time.

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.

Rioting involving thousands of people exploded on Monday in China's Gansu province, the latest bout of popular unrest.

The China Daily quoted Public Security Minister Meng Jianzhu as saying police "should be fully aware of the challenge brought by the global financial crisis and try their best to maintain social stability."

Although the Gansu violence was triggered by a plan to resettle residents in an earthquake-torn region, it follows strikes by taxi drivers and labor protests in regions long-reliant on the Western world's demand for Chinese exports.

IMA Asia, a business intelligence provider, said it had raised its political risk rating for China from low to medium.

"We are concerned about the potential for unrest within a massive pool of migrant workers who face lay-offs in the construction and export manufacturing sectors," it said.

JAPAN BANKS STRUGGLE

Japan's third-largest bank, Sumitomo Mitsui Financial Group, followed the lead of its larger peers by planning to raise at least $2.9 billion via 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, Japan's biggest brokerage, said he thought the global liquidity crisis was over but that the 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.

OPEC's president said major oil producers were also worried by economic slowdown and an oil price that has more than halved. They meet for talks on supply later this month.

"All members ... are very concerned about the economic situation which has worsened in the United States and Europe who have entered into a recession, followed by Japan," Chakib Khelil was quoted as saying in El Khabar newspaper.

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 bank bailout scheme.

The four Nordic countries said 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, the lowest level since the 1950s. After the Bank of England minutes, analysts forecast more 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."

CARMAKERS PLEAD

Stocks slid as a plea from U.S. automakers for a bailout met political opposition and prospects of a deep global recession rattled investors. European shares fell 1.2 percent and U.S. stock futures pointed to a weak start on Wall Street.

The "Big Three" U.S. carmakers warned the 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.

Auto firms 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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