More signs of recession

NEW YORK (Reuters) - U.S. consumer confidence and new-home construction plummeted in recent weeks providing further signs of a looming recession, ahead of a meeting on Saturday between U.S. President George W. Bush and European leaders to discuss the global financial crisis.

Bush, who leaves office in January, on Friday said intervention by governments in the U.S. and Europe in the past week needed time to work.

The U.S. president played down expectations for the weekend meeting which European leaders have said could pave the way for talks on an overhaul of the global financial regulatory system.

Interbank lending rates fell this week for the first time since July providing some hope that the worst of the global banking crisis may have passed, but stock markets around the world remained volatile. Fears about recession vied with hopes of finding a bargain after famed investor Warren Buffett said it was a good time to buy U.S. stocks.

Among benchmark stock indexes the Dow Jones Industrial Average ended down 127 points or 1.41 percent after trading in a 560 point range. The S&P500 index ended down 0.62 percent. Both indexes had risen as much as 3.0 percent at one point after European shares ended up.

Adding to the gloom about the U.S. economy, a senior Federal Reserve policy maker said the jump the U.S. jobless rate suggests the economy will likely slip into recession.

Bush said he would continue "close consultations" with European leaders at a meeting on Saturday with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso.

"Our European partners are taking bold steps. They show the world that we're determined to overcome this challenge together. And they have the full support of the United States," Bush said in a speech at the U.S. Chamber of Commerce.

But he did not specifically mention calls by European leaders to reform the financial system that the world has been operating under since 1944, and White House spokeswoman Dana Perino said the U.S. focus was on the immediate crisis.

"I think the most important thing we can do is make sure that we stop the bleeding here before we move on to the next project," she told reporters.

Writing in the Washington Post on Friday, British Prime Minister Gordon Brown said post-World War II financial institutions were out of date.

"They have to be rebuilt for a wholly new era in which there is global, not national, competition and open, not closed, economies," he wrote.

Bush's ability to act on such longer-term reforms is hamstrung by the fact that he will leave office in January, after the election on November 4.

Sarkozy and Barroso are expected to arrive at Camp David, the presidential retreat in Maryland, at about 4 p.m. EDT on Saturday and stay for about three hours, the White House said.

BUFFETT BUYS

A Reuters/University of Michigan survey said U.S. consumer confidence in October suffered its steepest monthly drop since the survey began in 1952. Earlier a U.S. government report showed construction starts on new homes fell to their slowest pace since January 1991.

Charles Evans, president of the Federal Reserve Bank of Chicago, said the U.S. economy was likely to be "very sluggish" well into 2009, but actions to restore liquidity to financial markets would kick in over time.

Evans said the current spike in the U.S. jobless rates was a likely precursor to recession. "Unemployment rarely goes up this much without a recession following," he told reporters.

After a 50 percent fall in oil prices in the past three months, oil jumped $2 to nearly $72 a barrel on Friday, spurred by expectations OPEC could cut output at an emergency meeting next week.

But Warren Buffett, the world's richest man, wrote in the New York Times on Friday that he was buying U.S. stocks for his personal account, saying the market was likely to move higher before sentiment or the economy changed. "So if you wait for the robins, spring will be over," he wrote.

Despite Friday's losses, the Dow Jones Industrial Average still snapped a three-week losing streak with its best weekly gain in 5-1/2 years, an unofficial weekly rise of 4.75 percent.

Interbank lending rates for dollars, euros and the pound fell, suggesting central banks' efforts to provide liquidity were beginning to thaw frozen money markets.

Overnight rates on U.S. commercial paper fell to their lowest in nearly two weeks. It was a welcome move in the credit market, which has struggled after the bankruptcy of Lehman Brothers caused an upheaval in the industry.

RESCUE EFFORTS

Efforts to stabilize troubled economies continued.

Ukraine said the International Monetary Fund was prepared to give it $14 billion in credit.

Iceland faced more uncertainty as Russia indicated it was not yet convinced it should make a rescue loan to the island nation. As Iceland ran down more of its meager foreign reserves, Belgium and Luxembourg said they would help keep its biggest bank, Kaupthing, in business.

In Russia, Finance Minister Alexei Kudrin said investors had pulled $33 billion out of the country from August through September.

Hungary slashed its forecast for growth next year by almost two percentage points, after agreeing on a 5 billion-euro ($6.7 billion) deal with the European Central Bank to keep euros flowing through its banking system.

In Asia, governments from Malaysia to Singapore scrambled to find ways to shore up their banks and avert recession.

A panel of Japan's ruling Liberal Democratic Party was considering ways to recapitalize big banks with government money, Kyodo news agency reported.

In South Korea, authorities pledged action to stabilize markets. Media reports said the steps, to be announced on Sunday, could include funding for banks struggling to find international banks willing to lend dollars.

(Reporting by Reuters bureaus around the world; Editing by Brian Moss and Steve Orlofsky)