Stimulus plans centre stage

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By Jeremy Gaunt

LONDON (Reuters) - Massive stimulus plans to drive the world out of recession took center stage on Wednesday with Europe considering a more than 130 billion euro boost following the U.S. Federal Reserve's $800 billion credit market bailout.

Underlining the troubles facing industry, Toyota Motor Corp had its top-notch credit rating cut for the first time in a decade.

French Economy Minister Christine Lagarde said an economic stimulus plan to be unveiled later in the day by the European Commission may amount to more than a previously expected 130 billion euros ($168.9 billion).

The Commission is set to urge the European Union's 27 countries to unite on a two-year dash for growth, even if it means breaking the region's national deficit targets.

Under draft proposals seen by Reuters, the EU executive cites the scope for further interest rate cuts, and suggests a variety of possible stimulus policies ranging from tax cuts to increased social benefits.

"The measures have to be targeted so that after the two years, when we have got out of the crisis period, we can get back to the principles of managing public finances, controlling and reducing deficits, reducing public debt," Lagarde told French media.

European Central Bank President Jean-Claude Trichet was quoted in Egypt's Al Ahram newspaper as saying that the ECB would do what it takes to provide liquidity to financial markets over the short term.

Elsewhere, Indonesia has approached Australia, the World Bank and other creditors to help cover its budget deficit next year, an Indonesian finance ministry official said.

The moves in Europe follow Tuesday announcement by the U.S. central bank, the Federal Reserve, of an $800 billion plan to buy mortgage-related debt and back consumer loans.

Under the life-support intervention, it is putting $600 billion toward mortgage-related debt and securities and $200 billion to support consumers.

Equity markets slipped on Wednesday over worries about the impact of huge stimulus programs on national accounts. Japan's Nikkei average shed 1.3 percent and the index of top European shares was down 1.2 percent in early trade.

SLIDING ECONOMIES

Governments across the world are struggling to keep their economies from sliding deep into recession.

The Organisation for Economic Cooperation and Development forecast on Tuesday that growth among its 30 member nations would contract by 0.4 percent next year, with "negative growth" in 19 countries.

Chancellor Angela Merkel told Germany's parliament that the financial crisis would lead to a sharp economic slump.

More evidence of the deteriorating global economy's impact on business came when Fitch Ratings downgraded Toyota's long-term foreign and local debt ratings to AA from AAA, with a negative outlook.

"The negative developments in the industry are so substantial and fundamental that even the strongest player -- Toyota -- can no longer support an 'AAA' rating," said Fitch Director Tatsuya Mizuno.

On Tuesday, another casualty was mining company BHP Billiton's $66 billion bid for rival Rio Tinto. BHP blamed the financial crisis and sliding metals prices.

(Additional reporting by Reuters bureaux worldwide, editing by Mike Peacock)

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