By Claudia Parsons and Patricia Zengerle
NEW YORK/WASHINGTON (Reuters) - Signs of a sharp slowdown in Europe and a barrage of profit warnings and job cut announcements from companies around the world intensified fears of deep global recession on Friday.
Stock markets slid across the globe, currencies experienced almost unprecedented volatility, and oil and other commodities tumbled on fears of plummeting demand that would accompany a global economic slowdown.
"I would characterize this as a shell-shocked mentality out there," said Thomas di Galoma, head of government bond trading at Jefferies & Co. in New York. "It's all the deleveraging of equities ... It's causing an issue for everyone."
The economic crisis prompted further U.S. government intervention: Officials stepped in to help finance the sale of ailing Cleveland-based National City Corp and prepared to announce 20 more banks will receive capital injections.
Speculation about a bailout of the U.S. auto industry also increased as General Motors has intensified negotiations to buy Chrysler's auto operations, intending to seek U.S. government aid to support any deal, people familiar with the talks told Reuters.
Chrysler said it was slashing about 5,000 white-collar jobs and industrial conglomerate ITT said it would also cut an unspecified number of positions.
Many analysts declared recession in Europe after reports showed the private sector economy in the 15 euro zone countries on track for its worst performance since the recession of the early 1990s.
Britain's economy experienced a much deeper-than-expected 0.5 percent contraction in the third quarter, its first contraction in 16 years, making a recession all but inevitable.
CHINESE WARNING
China warned the outlook for the world economy was grim.
"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.
The pace of U.S. existing-home sales rose in September, but a Reuters poll of economists suggested battered U.S. housing prices will fall into next year and a possible recovery in 2010 will be meek at best.
Foreign exchange markets saw extreme volatility, with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point.
Stock markets were in free fall around the world as investors panicked. Japan's Nikkei index ended down 9.6 percent, and European shares dropped 5.4 percent to close at their lowest level in more than five years.
The Dow and S&P 500 were down more than 4 percent in afternoon trading after dropping more than 5 percent at the open.
"There's definitely concern that this could be a recession for the United States, deep and long," Doreen Mogavero, CEO of independent NYSE member firm Mogavero, Lee & Co Inc, said on the New York Stock Exchange trading floor.
Losses were fueled by funds selling to raise cash to meet large-scale redemptions by investors, but some traders said the decline was not as bad as it could have been.
Russia suspended trading on its stock market until at least Tuesday after the market lost more than 13 percent of its value, hitting its lowest levels since late 2004.
OPEC, in emergency session, agreed to cut oil output by 1.5 million barrels per day in a bid to halt a steep slide in prices. But the price of U.S. crude fell 6 percent below $64 as economic gloom overshadowed the cut.
The price of Venezuelan oil has fallen more than 10 percent this week, boosting financial pressure on the government of leftist Hugo Chavez, whose popularity depends on oil-financed social programs.
Commodities from copper and zinc to sugar and coffee were battered by sharp selling -- bad news for emerging market economies that are major commodity producers and depend on exports.
The recent thaw in global money markets appeared to be coming to a halt as concerns over a global slowdown brought focus back to counterparty risk and raised expectations of sharp interest rate cuts.
The cost of borrowing overnight dollars rose and sterling overnight rates increased.
'SERIOUS RECESSION'
"It looks like it is a serious recession rather than just a mild recession," said Gilles Moec, economist at Bank of America.
A range of corporate giants reeled too, not just the banks that were hit first and hardest by a financial crisis that began with a U.S. housing market collapse.
Sony's shares plunged to a 13-year low after it halved its profit forecast. Samsung posted a 44 percent drop in quarterly profit.
French carmaker PSA Peugeot Citroen said it planned "massive" production cuts in the fourth quarter after a 5.2 percent fall in third-quarter sales.
Europe's largest airline group, Air France-KLM, issued a profit warning.
U.S. bank PNC Financial Services Group Inc said it would buy National City Corp in a $5.6 billion government-backed deal, only the latest of many major U.S. financial institutions swallowed up by lenders considered healthier since the economic crisis began.
The U.S. government is expected to shortly announce a list of about 20 banks in the next round of firms receiving capital injections under a $700 billion rescue package, according to a source familiar with the U.S. Treasury Department's thinking.
(Reporting by Reuters bureaus worldwide; Editing by Steve Orlofsky and Brian Moss)
