By Emily Kaiser and Jason Subler
WASHINGTON/BEIJING (Reuters) - The United States sold a record amount of debt to help fund its efforts to contain the financial crisis and Beijing's fifth rate cut since September failed to boost Chinese shares, as gloomy economic and corporate reports showed the world economy was stuck in a deep rut.
Oil prices extended their sharp fall to drop further below $40 a barrel on Tuesday, weakened anew by growing signs of dwindling world oil demand.
New Zealand's economy contracted by its biggest amount in eight years in the third quarter, sliding deeper into recession and backing the case for more rate cuts there.
Final third-quarter U.S. gross domestic product data due later on Tuesday is likely to underscore the ailing state of the world economy, as a steady series of stimulus measures and policy moves fail to halt a slide toward the worst recession in decades.
Chinese markets' response to Monday's 0.27 percentage point rate cut by the People's Bank of China highlighted the limitations of the policy tools available to confront deepening economic woes and the ensuing erosion of investor confidence.
The benchmark Shanghai Composite Index slid 4.55 percent on Tuesday to a three-week closing low, as investors had expected a much bigger rate cut.
"I think China must move quickly and continue to cut interest rates by a large margin in order to avoid deflation next year or stagflation over a bit longer time," said Lu Zhengwei, chief economist with Industrial Bank in Shanghai.
FURTHER JOB CUTS
The U.S. government has ramped up spending to try to cushion the economic blow of the financial crisis, underscored by its record-large $38 billion two-year note auction on Monday.
The auction drew bids worth more than twice that amount, showing that the government is so far having no trouble attracting sufficient buyers for its safe-haven debt, even as yields shrink to below 1 percent.
However, even more stimulus is on the way when U.S. President-elect Barack Obama takes office next month. His staff is discussing how much money Congress should authorize for a package that is likely to be well over $600 billion, pointing to a massive jump in debt issuance in the coming year.
Companies around the globe will be looking to such moves to help ward off further losses in the wake of shriveling demand, which has prompted many of them to slash jobs and investment to cut costs.
U.S. heavy equipment maker Caterpillar Inc said it would cut white-collar pay by as much as half and offer buyouts to some employees as it looks to cut costs during what it characterized as "uncertain times.
Textron Inc, the world's largest maker of corporate jets, said it will eliminate 2,200 jobs worldwide to cope with the downturn.
The world's top carmaker, Toyota Motor Co, is to promote Akio Toyoda to president in April in a bid to improve the firm's performance, the Japanese daily Asahi said on Tuesday.
Toyota on Monday forecast its first-ever group operating loss -- 150 billion yen ($1.7 billion) for the year to end-March -- citing a relentless sales slide and a crippling rise in the yen.
China resorted to moral suasion to urge its companies to hold on to as many workers as possible and vowed to support important industries, as it faces the prospect of increasing unrest in the face of rising unemployment.
"Companies must not lay off workers easily," Premier Wen Jiabao said during a visit to carmaker Changan Group in the southwestern city of Chongqing, the official China Daily said.
"The automobile industry has a long industrial chain and it is an industry the government should strongly support," Wen said.
(Reporting by Reuters bureaux around the world; Editing by Sonya Hepinstall)
