ECB could cut further; Japanese warn on profits

LONDON (Reuters) - The European Central Bank could cut interest rates to new record lows, its president said on Thursday, as German unemployment showed its biggest rise in nearly four years and eurozone economic sentiment worsened.

Japanese firms felt more pain from the global financial crisis and an international aviation body said 2009 would be one of the toughest years ever.

ECB President Jean-Claude Trichet said the bank could take more unusual measures to fight the global economic slowdown and cut rates below their current 2 percent, the lowest the bank has set.

"At this stage we have taken non-standard measures, could take more of these measures, we will see, I do not pre-announce anything, I do not exclude anything," Trichet said in an interview with CNN, posted on its website.

Signs of global corporate distress underlined the need for dramatic responses as U.S. President Barack Obama's $825 billion fiscal stimulus plan passed through the House of Representatives on Wednesday.

It marked the first legislative boost to his presidency, but showed the depth of partisan divisions as, despite an Obama charm offensive, every Republican vote opposed the bill. The Senate is expected to approve a similar version.

JAPANESE PROFIT CUTS

In Japan, Sony Corp followed fellow electronics maker Canon Inc with a dismal profit report. It fell into the red in the latest quarter and reiterated its forecast for a record annual loss due to sliding demand and a stronger yen. Sony's rival, Nintendo Co, cut its full-year outlook for the second time in three months.

Nippon Steel, the world's second-biggest steelmaker, cut its pretax profit forecast for the year to March by 36 percent on weaker demand for everything from household appliances to cars.

Electronics group Toshiba Corp said it planned to cut costs by $3.3 billion next business year by slashing capital spending and contract jobs.

The International Air Transport Association said air freight in December was down 22.6 percent from a year earlier -- an "unprecedented and shocking" free fall reflecting the slowdown in world trade. Passenger traffic was down 4.6 percent.

The data is bad news for the broader global economy -- a third of world trade is in goods sent by air.

IATA Director-General Giovanni Bisignani said the bottom of the market was nowhere in sight, adding: "Keep your seatbelts fastened and prepare for a bumpy ride and a hard landing."

Global airlines are set to post $2.5 billion in losses in 2009 after suffering a $5 billion loss last year, according to the industry body.

The global economic crisis has already cost trillions of dollars, and threatens millions of jobs.

German unemployment rose in January by 56,000 month-on-month in seasonally adjusted terms, compared with a forecast of 30,000. The unadjusted jobless total, a sensitive indicator in an election year, rose to 3.489 million.

In France, hundreds of thousands of workers staged a nationwide strike to try to force President Nicolas Sarkozy and business leaders to do more to protect jobs and wages.

Euro zone economic sentiment as surveyed by the European Commission hit record lows in January, while inflation expectations fell, bolstering the case for more rate cuts from the ECB. Money supply growth slowed, while growth of loans to the private sector fell.

"UNCERTAINTY REMAINS HIGH"

Bank of Japan Deputy Governor Kiyohiko Nishimura told business leaders: "Governments and central banks are acting promptly, but uncertainty over the outlook for the global economy, as well as the financial crisis in the United States and Europe, remains high."

He added: "It's not certain whether the measures taken up till now are enough." Nishimura said he expected the Japanese economy, widely expected to be entering its longest recession in modern times, to start recovering from October.

The U.S. Federal Reserve said on Wednesday it was prepared to buy long-term Treasury bonds if that would help improve credit market conditions. But U.S. government debt prices fell sharply as investors were disappointed that the Fed did not make a firm commitment to buy bonds.

Bond purchases could help to lower mortgage rates and curb the U.S. housing downturn -- at the heart of the global crisis. The Fed held its main interest rate in a range between zero and 0.25 percent and said it could stay unusually low for some time.

In Wellington, New Zealand's central bank slashed rates by 1.5 percentage points to a record low 3.5 percent

Japan's Nikkei stock average closed 1.8 percent higher, boosted by exporters such as Honda Motor Co., gaining on a softer yen, and mirroring the generally positive response to Obama's stimulus package and other measures.

European stocks were lower, however, with the FTSEurofirst index down 1 percent in late morning trade.

Russia is discussing plans to bail out its second-largest lender VTB, VTB's chief executive said.

Germany's finance minister said there would be no state "bad bank" to take toxic assets off banks' books, but he might let them set up such entities for themselves.

(Editing by Kevin Liffey)