By Eddie Evans and Claudia Parsons
NEW YORK (Reuters) - Consumer confidence and new-home construction plummeted in further signs of a looming recession, ahead of a meeting between U.S. President George W. Bush and European leaders to discuss the financial crisis.
Bush said government interventions to stop the crisis needed time to work, but interbank lending showed signs of a thaw and markets took heart from an article by famed investor Warren Buffett saying it was time to buy U.S. stocks.
It was a day of see-saw moves on Wall Street.
Major U.S. stock indexes reversed 3 percent gains and dipped in and out of negative ground in late trading after a senior Federal Reserve policy maker said the spike in the U.S. jobless rate suggests the economy would likely slip into recession.
Stocks had been trading higher after European shares ended up with oil prices recovering.
Bush said he would continue "close consultations" with Europe 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 this week 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the Washington Post on Friday, British Prime Minister Gordon Brown said post-World War II financial institutions were out of date.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. 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. That followed a U.S. government report that 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 speech in Wisconsin.
Oil jumped $2 to nearly $72 a barrel on Friday, spurred by expectations OPEC could cut output at an emergency meeting next week and by broadly rising financial markets.
Buffett, the world's richest man, wrote in the New York Times 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.
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, Federal Reserve data showed. It was a welcome move in the credit market, which has struggled after the bankruptcy of Lehman Brothers caused an upheaval in the U.S. money market mutual fund industry.
European Central Bank council member Mario Draghi, governor of the Bank of Italy, said restoring confidence in the markets quickly may require new, "bolder" steps, including measures to strengthen interbank markets.
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, itself hit hard by the crisis and international wariness after its brief war with former Soviet Georgia, Finance Minister Alexei Kudrin said investors had pulled $33 billion out of the country from August through September.
A source said another Russian bank could be nationalized, bringing the total to four.
Hungary slashed its forecast for growth next year by almost two percentage points, after agreeing on a 5 billion-euro deal with the European Central Bank to keep euros flowing through its banking system.
In Asia, governments scrambled to find ways to shore up their banks and combat an economic slowdown.
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.
Australia's prime minister met industry leaders, who said credit was drying up and smaller companies were collapsing despite assurances the economy was in good shape.
Singapore and Malaysia both said they would guarantee all bank deposits until 2010, following similar moves worldwide.
(Reporting by Reuters bureaus around the world; Editing by Brian Moss and Steve Orlofsky)
