By Mike Peacock
LONDON (Reuters) - Britain's economy shrank, China said the outlook was grim and companies from Japan to France were punished on Friday as a downturn born of the worst financial crisis in 80 years took root.
Separate figures from the euro zone showed the 15-nation currency bloc was already in recession, analysts said.
Markets went into a tailspin.
U.S. stock index futures tumbled so sharply in Europe they had to be frozen at several points. Dow Jones futures were down 6.2 percent and European shares shed 7 percent after stocks in Japan dropped to their lowest level in 5-1/2 years.
"The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations.
Britain's economy shrunk 0.5 percent in the third quarter, the first contraction in 16 years, after registering no growth in the second.
Bank of England policymaker Andrew Sentance said the risk of a severe recession in Britain had risen. "Hopefully we can avoid that sort of situation in the current circumstances, but the risks of that have increased," he told BBC Radio.
Compounding the gloom, a survey of companies showed the euro zone private sector economy on track for its worst performance since the recession of the early 1990s.
The October Markit Eurozone Flash Purchasing Managers' Indexes show services business contracting at its fastest pace since collapsing after the September 11, 2001 attacks. Factory output was contracting at its fastest pace in at least a decade.
"This is it, we are clearly into recession," said Gilles Moec, economist at Bank of America.
A range of corporate giants reeled too, not just the banks who were hit first and hardest by a financial crisis that began with a U.S. housing market collapse and now threatens recession across much of the globe.
Sony's shares plunged to a 13-year low after it halved its profit forecast.
French carmaker PSA Peugeot Citroen cut its full-year operating margin target and said it planned to make "massive" production cuts in the fourth quarter after posting a 5.2 percent fall in third quarter sales.
Air France-KLM also succumbed to the financial crisis with a profit warning, sending shares in Europe's largest airline group down about 7 percent.
OPEC CUT
The prospect of lower inflation on the back of tumbling oil and food prices has been a rare economic bright spot but an emergency OPEC meeting on Friday agreed to cut output by 1.5 million barrels per day from September levels, in an attempt to halt the deep oil price slide.
However, the price continued to fall as economic gloom overshadowed the cut.
Authorities around the world have committed nearly $4 trillion in a variety of schemes including deposit and debt guarantees and taking stakes in struggling banks, to restore confidence to the financial system.
In Washington, the Treasury Department and bank regulators plan to announce as soon as this weekend the next batch of banks receiving capital injections as part of its bank bailout package, a source familiar with the Treasury's thinking said.
European leaders wants China, the world's fastest-growing major economy, to help shape global financial reforms.
"There was large agreement that such answers must be found internationally," German Chancellor Angela Merkel said after talks with Chinese President Hu Jintao in Beijing. "I think China will make its contribution to the stabilization of the world economy."
Merkel called for a new "constitution" for the financial system, with more transparency, stricter supervision of financial actors and better capital requirements.
Hu had earlier said the outlook was "grim and complicated."
Leaders of the world's major industrial nations and other big economies will discuss the crisis at a special summit on November 15 in the United States. Chinese spokesman Liu Jianchao said his government was "actively considering" attending.
IMF PACKAGE
The International Monetary Fund is hurrying to approve by early November a package allowing certain emerging economies exchange their currencies for U.S. dollars to ease short-term credit strains, officials familiar with the plans said.
The facility would be available to a group of "top tier" emerging market countries -- those well-run but may be having difficulties obtaining credit, the officials told Reuters.
So far, Hungary, Iceland, Belarus, Ukraine and Serbia are in talks with the IMF on economic programs backed by financing.
Interbank lending, frozen for much of the last year as banks feared peers might collapse, has shown some signs of thawing.
In London, interbank rates for overnight dollar deposits were indicated in a range of 0.95-1.25 percent but the cost of borrowing longer-dated dollars rose as banks remained wary of lending to each other for durations extending into next year.
Markets expect the Federal Reserve to cut U.S. rates sharply next week to help head off a sharp recession. To that end, investors will scrutinize U.S. home sales data due later.
(Reporting by Reuters bureaus worldwide; editing by Keith Weir)
