By Leika Kihara and Paul Carrel
TOKYO/BERLIN (Reuters) - German business sentiment posted a surprise rise in January, a survey from Europe's biggest economy showed on Tuesday, offering a glimmer of optimism in a global crisis which prompted Japan to extend aid to small companies.
Japan said it would offer a lifeline to the small- and medium-sized companies at the heart of the world's second-largest economy with a $16.7 billion fund to buy stakes.
Tokyo has already committed funds to help banks and spur lending but unpopular Prime Minister Taro Aso's ruling bloc is under pressure to do more ahead of an election which must be held by October.
"In light of the looming election, the government needs to help companies that are bleeding losses," said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.
In Russia, sources told Reuters that the government was set to help top bank Sberbank and other lenders with a second bailout package worth more than $27 billion.
One government source said Russia planned to offer Sberbank a 500 billion roubles subordinated loan.
In the United States, Timothy Geithner, confirmed as treasury secretary on Monday, vowed to act swiftly to rescue the world's largest economy from the worst financial crisis since the Great Depression. He plans to overhaul the $700 billion financial rescue program and is expected to propose new steps to unclog credit markets in the next two weeks.
Canada is set to unveil its budget and stimulus package later on Tuesday.
IFO POLL
German corporate sentiment defied fears it would dip to a new post-reunification low for January, Ifo's monthly poll of around 7,000 firms showed.
Despite weakening demand and production cuts, the Munich-based economic think tank said the business climate index rose to 83.0, up from 82.7 in December and topping the 81.3 expected by 50 economists polled by Reuters.
German conglomerate Siemens on Tuesday posted an 81 percent drop in quarterly net profit but even that beat analyst forecasts. It said its targets this year had grown "more ambitious.
POLITICAL IMPACT
"We are at a moment of maximum challenge for our economy and our country," U.S. Treasury Secretary Geithner said as he was sworn into office shortly after the Senate approved him on a 60-34 vote.
The Japanese economy is struggling with its first recession in seven years. December exports were down by more than a third and business sentiment was at a record low.
Japan's ruling and opposition parties bickered over a $53.4 billion extra budget to fund government stimulus plans on Tuesday, in another sign of deadlock in parliament amid a deepening recession.
Governments around the world have spent hundreds of billions of dollars on bank bailouts and fiscal stimulus, while central banks have slashed interest rates to record lows since a U.S. housing slump burst a global credit bubble.
Icelandic President Olafur Ragnar Grimsson was trying to put together a new government on Tuesday, one day after Prime Minister Geir Haarde's coalition collapsed under the weight of public protest over the downfall of the island's banking sector and currency.
"It's safe to say that no government in the history of Iceland has had to deal with as many and as complex problems as the one that is now leaving office," Grimsson told reporters at his residence late on Monday.
Bank of Japan minutes showed on Tuesday that most of its policy board members thought its key interest rate of 0.1 percent was the lowest possible level allowing money markets to function.
India's central bank left its key short-term interest rates unchanged at a policy review on Tuesday so as to assess the impact of its recent aggressive easings, but cut its growth forecast for the fiscal year ending in March.
(Additional reporting by Linda Sieg in Tokyo; Kim McLaughlin in Reykjavik; Editing by Ruth Pitchford)
