By Wayne Cole and Hideyuki Sano
SYDNEY/TOKYO (Reuters) - Australia slashed interest rates and the Bank of Japan moved to ease an acute cash crunch for companies, kicking off another round of global central bank action to soothe markets and shore up crumbling economies.
Britain, the euro zone and New Zealand will almost certainly cut interest rates later this week. In addition to more rate cuts, the Federal Reserve is weighing other responses with its benchmark rate nearing zero and the U.S. economy now officially in recession.
Asian stocks tumbled, tracking slides in Europe and on Wall Street, and U.S. government bond yields collapsed to half-century lows, as fear about the economic outlook gripped investors.
The arbiter of U.S. economic cycles confirmed some of those fears overnight, saying the U.S. economy was in the third-longest recession since the Great Depression.
The Reserve Bank of Australia (RBA) cited the perilous state of the global economy when it cut the benchmark cash rate by a full percentage point to 4.25 percent, a bigger margin than most analysts had forecast. It left the door open to more cuts.
"The economy is poised on a knife edge and the RBA is going to keep cutting until it starts to get traction with consumers and housing," said Macquarie senior economist Brian Redican.
The Bank of Japan decided to keep its benchmark unchanged at an emergency meeting called to deal with a cash squeeze on Japanese companies, facing slumping export markets and an economy that appears to be on course for it longest contraction ever.
PRESSURE TO RESPOND
The central bank temporarily broadened the range of collateral it would accept to include triple-B-rated corporate debt for loans of up to three months. That would help cash starved firms get through the year-end funding squeeze.
Liquidity is usually tight near year-end and investors are bracing for an even greater squeeze this year after a credit crisis triggered by U.S. mortgage defaults destroyed banks from Wall Street to Iceland.
"Given an increasingly tight funding environment ahead of the end of the year, it is appropriate for the B0J to introduce such a special lending facility," said Yasuhiko Onakado, chief economist with Daiwa SB Investments in Tokyo.
"Having said so, I also feel that the BOJ could have introduced such a scheme at a more appropriate time, or that the decision fell behind the curve."
The mutating financial crisis has piled pressure on policymakers to ramp up their response, including massive interest rate cuts by the world's major central banks.
The Bank of Japan has less room to maneuver with its benchmark at 0.3 percent and the Fed may soon find itself in the same situation as its policy rate falls below the current 1 percent.
Fed Chairman Ben Bernanke said on Monday further cuts in the benchmark rate below 1 percent were "certainly feasible." He also said the central bank could take steps such as buying "substantial quantities" of longer-dated U.S. government debt.
Such unusual measures could ultimately lead to other problems because market prices would be distorted by official tinkering, economists said.
"The longer-term implications of these actions, if prolonged, might also lead to unintentional financial imbalances," Thomas Lam, senior treasury economist with United Overseas Bank in Singapore, said in a note.
COMPANIES STRUGGLE
U.S. Treasury yields plunged as investors moved to anticipate possible Fed buying as well as to take refuge from the mayhem of stock markets.
Stocks tumbled across Asia on Tuesday on expectations for more economic gloom. Japan's Nikkei share average fell 6 percent as the stronger yen, reflecting investor retreat from risky assets, added to exporters' pain. Hong Kong's Hang Seng index dropped 5 percent.
Companies around the world were struggling to cut costs.
Toyota Motor Corp, the world's no. 1 carmaker, said it would cut management bonuses by 10 percent as it grapples with the global slump.
The National Bureau of Economic Research, a private research group that makes the final call on when U.S. recessions start and end, declared that one began in December 2007.
China, widely expected to remain the main driver of the global economic growth next year, was also under pressure to do more to counter plummeting demand and rising unemployment.
The world's fourth-biggest economy should take further steps, including cutting interest rates and taxes as well as increasing investments aimed at spurring domestic consumption, a state think-tank said on Tuesday.
Top economic policymakers will convene next week to plot how to secure growth of at least 8 percent in 2009, government official said.
Annual economic growth slowed to 9 percent in the third quarter from 10.1 percent in the second.
(Additional reporting by Reuters bureaus worldwide; Writing by Kevin Plumberg, editing by Dayan Candappa)