U.S., Europe and Asia to raise stimulus stakes

LONDON (Reuters) - Chinese and European leaders were due to plot their next steps on Monday to move the world economy back from a precipice, while stimulus measures presented, planned or pending injected optimism into stock markets.

In Washington, White House and Congressional negotiators worked on Sunday to resolve differences in an emergency rescue package for the ailing "Big Three" U.S. automakers due to include at least $15 billion in loans.

The plan gained urgency after Friday's U.S. employment data showed more than half a million jobs were lost in November. A report on Monday that Japan's Toyota Motor Corp was eyeing a sharp cut in capital spending showed how the industry downturn is engulfing all automakers.

U.S. President-elect Barack Obama unveiled plans over the weekend for the largest U.S. infrastructure investment program since the 1950s and to create 2.5 million jobs, which analysts said could cost at least $500 billion.

EUROPEANS MEET

British Prime Minister Gordon Brown, French President Nicolas Sarkozy and European Commission chief Jose Manuel Barroso were due to meet business leaders in London later on Monday to discuss the economy.

And China's leaders gathered to map out economic policy for next year, state media reported, with the government struggling to shore up growth and jobs as export demand shrinks.

The "central economic work conference" will meet in a closed session to discuss ways to keep annual growth at 8 percent or higher, said a report on the official Xinhua news agency's website (www.xinhuanet.com).

The EU leaders meet just before a European Union summit in Brussels on December 11 and 12, which will study European Commission proposals to give the sagging economy a sharp boost with a 200 billion euro ($250 billion) spending plan.

Britain and France have announced ambitious stimulus plans to jump-start their faltering economies. But Europe's biggest economy, Germany, is resisting pressure to provide billions more euros to finance EU economic growth measures, arguing that its already-launched fiscal program is sufficient.

German Chancellor Angela Merkel was not attending Monday's meeting. A German government spokesman denied last week that she had been snubbed.

MARKETS BUOYED BY STIMULUS MEASURES

Stock markets shot up on hopes that agreement on a package for U.S. carmakers was near. A spate of rate cuts and stimulus measures, and expectations of more to come, also fueled buying.

The MSCI Index of Asia-Pacific stocks outside Japan jumped 7.3 percent on Monday, while Tokyo's main Nikkei index was up 5 percent.

European shares surged 5.6 percent in early trade, tracking gains in the United States and Asia.

"There is a lot of talk about support measures from China, including buying up more bank shares, a rescue package for the stock market and other steps to boost private consumption," said Peter Lai, director with DBS Vickers.

India also weighed in on the stimulus front, announcing on Sunday it planned $4 billion of extra spending in a package to revive economic growth and to shore up confidence knocked by militants' attacks on Mumbai.

Authorities are pulling out all the stops to keep India's once-impressive pace of growth from slowing too sharply, with the central bank slashing key interest rates by a full point on Saturday to keep credit flowing.

Australia began handing out cash to families and pensioners, part of a stimulus package unveiled in October.

"I've urged pensioners and families to spend this money responsibly, to use this money to make ends meet, to help out their kids and help out their grandkids," Prime Minister Kevin Rudd said on Monday.

But a lack of bank-to-bank lending remains at the root of the world economy's problems. Banks deposited 250 billion euros at the European Central Bank overnight, a sign that they are still hoarding money as fears of further bank collapses persist.

JAPAN STRUGGLES

Even as bank lending dries up, the commercial paper market, in which companies raise money directly, is also shriveling. Japan's commercial paper market shrank in November at its fastest pace in two years.

Revised data on Tuesday is expected to show Japan's economy shrank 0.2 percent in July-September, double the previous reading and confirming a recession, according to a Reuters poll.

While Japan escaped direct damage from the U.S. subprime mortgage meltdown, its export-dependent economy has been battered by the credit crisis.

Underscoring the pain from the global downturn, Japan's current account surplus more than halved from a year earlier.

The Nikkan Kogyo newspaper reported that Toyota, the world's largest auto maker, was considering cutting capital expenditure for the next business year April by 30-40 percent in response to the sharp downturn in car sales.

(Additional reporting by Reuters bureaux worldwide; Editing by Editing by Kevin Liffey)