U.S. data expected to point to deepening recession

SINGAPORE/LONDON (Reuters) - Japan's government approved its biggest-ever budget on Wednesday to try to revive an economy hurt by the global financial crisis and U.S. data was expected to give further evidence of the worsening recession.

Governments across the world have tried to boost spending to ease a recession ushered in by a credit crisis in the United States when a housing market boom turned sour.

"Japan cannot avoid the tsunami of the world recession, but it can try to find a way out," Japanese Prime Minister Taro Aso told a news conference, in which he illustrated the government's stimulus plan with a diagram of a three-stage rocket.

"The world economy is in a once-in-a-hundred-years recession. We need extraordinary measures to deal with an extraordinary situation."

Japan's cabinet approved a record 88.5 trillion yen ($980.6 billion) budget for the next fiscal year starting in April.

The plan boosts overall spending, excluding debt servicing costs, by 9 percent compared with this year's initial budget and aims to accommodate part of 12 trillion yen in extra spending on government stimulus packages.

But the budget could be held up in a divided parliament because of Aso's sinking public support and weakening control over the Liberal Democratic Party.

Germany is also increasing spending. But Europe's biggest economy plans to limit to 25 billion euros ($34.97 billion) a second package of stimulus measures, a regional political said.

The program's scope is less than the 40 billion euros previously reported for new projects.

Chancellor Angela Merkel is under pressure to do more to boost Germany's economy, already in recession, and politicians and economists have attacked the 31 billion euros-worth of measures already pushed through as insufficient.

DEVALUED

Further east, countries have also sought to interest rate cuts and spending plans to try to stave off the downturn.

Poland's central bank said it was likely to cut rates further in 2009 because economic growth could be more than halved.

In neighboring Russia, a central bank source confirmed the rouble had been devalued for the seventh time in a month and a deputy interior minister said the country faced an increasing number of unrest due to crisis measures.

"The situation may be exacerbated by a growth in protests, arising from the frustration of workers over the non-payment of wages or those threatened with dismissal," RIA news agency quoted Deputy Minister Mikhail Sukhodolsky as saying.

European Central Bank chief Jean-Claude Trichet said markets were failing to value the measures taken to ward off what he called a situation unprecedented since World War Two.

"There is an underestimation in the financial sphere of the very great importance of the decisions that were taken," Trichet told said in a speech at a Paris think-tank on Tuesday.

He called on governments in the euro zone to be wary of piling on debt to fund stimulus packages, saying it would do little to boost confidence in the economy or the markets.

ECB Governing Council member and Austrian central bank head Ewald Nowotny told television that further interest rate cuts at the European bank could not be ruled out.

In the United States, home to the credit crisis, further evidence of how deep it has fallen into recession is expected with the release of weekly jobless claims, November durable goods and November personal income and consumption.

Consumption is likely to have fallen 0.7 percent, while durable goods orders probably dropped 3.0 percent versus a 6.9 percent decline in October, according to Reuters surveys.

Economists forecast 560,000 new filings for jobless benefits in the week to December 20, compared with 554,000 in the prior week.

With the housing-led economic slump on track to be the longest and deepest in about 60 years, more companies are expected to cut jobs to battle a sharp fall in demand and tight access to credit.

Across the United States almost 2 million workers have lost jobs this year, driving the unemployment rate to 6.7 percent.

On Tuesday, U.S. data pointed to a record drop in existing home sales and prices last month, pushing Wall Street lower. Shares in Europe also weakened, with a weaker crude price hitting energy companies.

(Reporting by Reuters bureaus around the world; Writing by Elizabeth Piper; Editing by Timothy Heritage)