Australia cuts rates as Japan acts on funding squeeze

BRUSSELS/SYDNEY (Reuters) - European Union ministers sought ways on Tuesday to boost investment and consumer spending while Australia slashed interest rates in the latest actions to combat the global financial crisis.

The Bank of Japan moved to ease the plight of Japanese companies squeezed for cash but Toyota Motor Corp said it would cut management bonuses by 10 percent as it cuts back production in the face of collapsing demand.

The world's number one carmaker was just one of many global companies struggling to cut costs in the face of the worst financial crisis since the Great Depression.

With the United States in recession according to the nation's business cycle arbiter, Asian stocks tumbled and European markets got off to a shaky start on Tuesday as fear about the economic outlook gripped investors.

"Equities will have a rough ride in the start of December, and this will continue until we see a ray of hope on the macro side," said Franz Wenzel, strategist at AXA Investment Managers in Paris.

Finance ministers from all 27 EU nations gathered in Brussels to discuss a European Commission proposal for governments to spend an extra 1.2 percent of GDP from their budgets to boost investment and consumer demand.

On Monday, however, Germany rejected pressure to do more in Europe's battle against recession and said it would not to be lured into what Chancellor Angela Merkel called a "senseless" public spending contest.

Finance Minister Peer Steinbrueck said Germany had already unveiled plans worth 31 billion euros, or 1.25 percent of its gross domestic product (GDP), to tackle the downturn.

RECESSION BUT NO COLLAPSE

Steinbrueck offered a crumb of comfort, saying the European economy was in recession it but not about to go into meltdown.

"The European economy is not facing collapse, please," he said in Brussels on Monday night.

His words would give little to cheer to Spain. The Madrid government said Spain's registered joblessness rose by 171,243 people or 6 percent in November, the eighth straight month of increase that took the number of unemployed to 2.99 million.

The Reserve Bank of Australia (RBA) cited the perilous state of the global economy when it cut the benchmark cash rate by a full percentage point to 4.25 percent and left the door open to more cuts.

"The economy is poised on a knife edge and the RBA is going to keep cutting until it starts to get traction with consumers and housing," Macquarie senior economist Brian Redican said.

Britain, the euro zone and New Zealand will almost certainly cut interest rates later this week. In addition to more rate cuts, the U.S. Federal Reserve is weighing other responses with its benchmark rate nearing zero.

Britain's construction sector shrank last month at its fastest pace in more than a decade, a survey showed on Tuesday.

The Bank of Japan kept its key rate at 0.30 percent an emergency meeting to deal with a cash squeeze on Japanese companies, which face slumping export markets.

It unveiled 3 trillion yen ($32 billion) in new measures to ease the squeeze in corporate funding. The BOJ will accept a wider range of corporate debt as collateral and launch a new scheme to make it easier for banks to make loans to companies.

The global crisis, triggered by U.S. mortgage defaults that destroyed banks from Wall Street to Iceland, has piled pressure on policymakers to ramp up their response, including sweeping interest rate cuts by the major central banks.

MORE U.S. CUTS FEASIBLE

Fed Chairman Ben Bernanke said on Monday further cuts in the U.S. benchmark rate below 1 percent were "certainly feasible." He also said the central bank could take steps such as buying "substantial quantities" of longer-dated U.S. government debt.

But such unusual measures could ultimately lead to other problems because market prices would be distorted by official tinkering, economists said.

Stocks tumbled across Asia on Tuesday amid more pessimism. Japan's Nikkei share average fell 6 percent and the index of leading European shares shed 1.5 percent, adding to a sharp sell-off on Monday.

China, widely expected to remain the main driver of the global economic growth next year, was also under pressure to do more to counter plummeting demand and rising unemployment.

Chinese policymakers will meet next week to plot how to secure growth of at least 8 percent in 2009, an official said.

The pain also reached deeper into the workplaces of big financial players.

Switzerland's Credit Suisse AG and Britain's HSBC are axing hundreds of jobs as the worst financial crisis since the 1930s continues to bite.

Credit Suisse will shed 650 jobs and HSBC, Europe's biggest bank, said it was cutting 500. Around 90,000 jobs have been axed at major global banks since September.

The Wall Street Journal reported Goldman Sachs was likely to report a net loss of as much as $2 billion for the fourth quarter.

Tesco Plc, Britain's top retailer, posted its weakest UK sales growth since the early 1990s. It said the success of a new budget range launched to cope with the consumer downturn, attracted more customers but held back sales.

(Additional reporting by Reuters bureaus worldwide; Writing by Angus MacSwan; editing by Mike Peacock)