By Mike Peacock
LONDON (Reuters) - Germany and Britain displayed fresh recessionary symptoms on Thursday and a central banker said UK interest rates could hit zero, a level Japan's are forecast to drop closer to this week.
The Federal Reserve cut U.S. rates to near zero on Tuesday to temper a deep downturn but data from Europe underscored just how badly the world economy is faring.
German corporate sentiment deteriorated sharply in December, with manufacturers of export goods suffering acutely, the closely-watched Ifo survey showed.
It posted its lowest pan-German figure since reunification in 1990 and Ifo said it had to go back to 1982 to find such a weak index level in the former West Germany.
"The German economy is in the middle of a severe recession but it is still unclear how large this recession will be," said ING Financial Markets' Carsten Brzeski.
British retail sales rose unexpectedly in November but government borrowing hit a record monthly high and mortgage lending plunged 51 percent year-on-year.
French Prime Minister Francois Fillon said no European country would avoid contraction in 2009.
The U.S. is mired in recession and has dragged much of the world with it, following the meltdown of its housing market in 2007 and the crippling bank losses that resulted.
The head of the International Monetary Fund predicted a U.S. recovery by early 2010 but loaded his assessment with caveats.
"There is a reasonable probability ... of the U.S. economy starting to recover at the end of 2009 or the start of 2010," Dominique Strauss-Kahn told Spanish newspaper Expansion.
He based his view on the likelihood of the housing market having touched a low-point and demand reacting to fiscal stimuli, but said it was "plagued with uncertainty."
ZERO-BOUND
With the Bank of Japan expected to cut its interest rate closer to zero on Friday, Bank of England Deputy Governor Charles Bean told the Financial Times zero rates were also a possibility in Britain.
The UK central bank has already slashed rates by three full points to 2.0 percent since October.
Strauss-Kahn said there were limits to the ability of monetary policy to stimulate demand as new liquidity was being hoarded by banks. The world needed a fiscal stimulus, he said.
The European Central Bank may use Thursday's mid-month meeting to offer some hint of plans to kick-start interbank lending and coax banks out of the habit of hoarding cash.
One of the options is cutting the interest rate that banks get when they deposit money at the central bank.
The BoJ is forecast to cut rates from an already minimal 0.3 percent after the dramatic Fed cut, but to stop short -- for now -- of reviving a policy of flooding markets with cash.
"If the BOJ shares the government's view on the financial situation, I expect the bank to take whatever steps are necessary," Finance Minister Shoichi Nakagawa told reporters.
Authorities also warned of possible intervention to stem a surge in the yen which is battering exporters such as carmakers.
CAR CRISIS
Japan's auto industry lobby said the yen's strength would have a profound negative impact on its members, while desperate U.S. automakers awaited word on whether the White House would grant them billions of dollars in emergency loans.
Chrysler LLC is to halt factory operations for at least a month starting Friday, to ride out a collapse in demand brought on by the global financial crisis. The suspension put new pressure on the Bush administration to act quickly.
Desperate to avoid bankruptcy, Chrysler owner Cerberus Capital Management
In Europe, new commercial vehicle registrations dropped a record 30.8 percent year-on-year in November, industry association ACEA said.
Expectations that interest rates have further to fall settled stock markets -- Japan's Nikkei average <.N225> closed 0.6 percent higher and European shares were flat.
Oil prices steadied at around $40 a barrel, near its lowest in more than four years, a sign that dramatically slowing world demand was trumping OPEC's biggest-ever production cut.
The Organization of the Petroleum Exporting Countries (OPEC) announced on Wednesday it would cut 2.2 million barrels daily of output starting January 1, slightly more than expected.
"The world economy is driving the price more than anything OPEC can do," said Gary Ross, CEO of consultancy PIRA Energy.
South Korea, one of the hardest hit Asian economies, said it would launch a 20 trillion won ($15.1 billion) fund in January to help banks replenish capital and encourage them to lend.
Bahrain cut key deposit and lending rates by 75 basis points and the Philippine central bank trimmed rates by half a point.
(Editing by Mark Trevelyan)
