By Ruth Pitchford
LONDON (Reuters) - Ireland's prime minister denied talking about seeking help from the IMF while Britain offered on Wednesday to spend billions more pounds helping businesses survive the world's worst economic crisis since the 1930s.
Brian Cowen's denial that his government had any plans to call on the International Monetary Fund (IMF) to help the country's ailing economy helped stabilise the euro.
It had fallen more than a cent against the dollar after traders cited a report that Cowen had said Ireland may need IMF help if its economic prospects continued to deteriorate.
More than a year after a long-running global credit boom turned to bust, global bank Deutsche said it lost about 4.8 billion euros (4.36 billion pounds) in the final three months of 2008 alone and analysts said Europe's biggest bank, HSBC Holdings, might need to raise up to $30 billion (21 billion pounds) in a rights issue.
Economic data on Wednesday underlined the speed with which Europe's biggest economy, Germany, reversed into contraction in 2008 and signalled a worsening recession across the euro zone where industrial production fell for the seventh month running in November.
"The European Central Bank needs to cut rates aggressively and we need to see a high degree of fiscal stimulus to try and return the economy to growth within a reasonable timeframe," said UBS economist Sunil Kapadia.
Economies such as Britain, Ireland and Spain, where soaring house prices fuelled a long-running credit boom, are expected to bear the brunt of recessions induced by the abrupt halt to lending since the scale of bank exposure to high-risk debt began to emerge in August 2007.
The government's 20 billion pound working capital scheme will guarantee existing loans to small and medium-sized companies. It met a sceptical response as policymakers and analysts questioned whether official efforts would make banks lend more freely and enable companies and consumers to keep spending.
U.S. COMPANIES STRUGGLE
U.S. retail sales data for December, due later on Wednesday, was expected to confirm a struggling economy and shrinking consumer spending.
In the automotive sector, struggling U.S. carmaker Chrysler is in talks to sell assets to Renault-Nissan and parts supplier Magna, sources with knowledge of the discussions have told Reuters, though the French automaker on Wednesday denied such talks were under way.
U.S. giant Citigroup moved on Tuesday towards dismantling what was the world's biggest financial services group, as it agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management business, and may isolate toxic debts in a "bad bank.
HSBC has not had to raise capital during the financial crisis, unlike most of its big rivals, due to its historically strong capital and liquidity. But its shares hit a 7-year low after Morgan Stanley slashed its earnings forecasts for the bank for this year and next, and said its relative capital position is not as strong as in the past.
Governments around the world have already pledged hundreds of billions of dollars to shore up bank capital, cut taxes and fund projects that will create jobs, while central banks have pumped funds into the money markets and slashed interest rates. The European Central Bank is expected to cut its benchmark rate again on Thursday.
EXPORTERS HURT TOO
The British plan for small businesses is the latest attempt by Prime Minister Gordon Brown, who is lagging in the polls and must fight an election within 18 months, to revitalise the economy, and follows a job initiative on Monday.
"We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions," business minister Peter Mandelson said.
The economy looks certain to have gone into recession at the end of last year for the first time since 1992. Punch Taverns, the nation's biggest pub operator by number of outlets, said on Wednesday that even the volume of beer sales had taken a double-digit fall in the past few months.
The global crisis is increasingly hurting export-driven economies, too.
"Germany is facing the most difficult economic times in decades," said German Chancellor Angela Merkel, whose government has assembled two economic stimulus packages worth roughly 81 billion euros (74 billion pounds) over two years.
In Asia, the Bank of Thailand cut its main interest rate by a bigger-than-expected 75 basis points to a four-year low on Wednesday, the second hefty cut in two months to ward off recession, and signalled it could cut further.
(Additional reporting by Steve Slater, Alison Leung, Kate Kelland and Paul Hoskins in London; Andras Gergely in Dublin; Paul Carrel in Frankfurt; Noah Barkin and Kerstin Gehmlich in Berlin; and Kitiphong Thaichareon in Bangkok; Poornima Gupta in Detroit and Pascale Denis in Paris; editing by Guy Dresser)