Bleak Jobs Data Forecasts Add to Automakers' Woes

China and the United States sparred on Friday over how to handle an economic crisis that has forced central banks around the globe into a series of dramatic interest rate cuts.

Figures due on Friday were expected to show the sharpest U.S. job losses in 26 years, underling the severity of a downturn caused by the worst financial crisis since the 1930s.

Sharp labour market weakness would add urgency to a bid by executives of the cash-starved U.S. auto industry who are in Washington pleading for a bailout.

In a sign of the problems facing the industry, Japanese carmaker Honda Motor pulled out of Formula One motor racing, unwilling to bankroll a team with an estimated annual budget of $500 million.

With many developed countries either in recession or heading that way, central banks have cut interest rates close to the bone and attention is now starting to focus on what happens if they get to zero.

Against the bleak economic backdrop, signs of tension marked two days of talks between the United States and China.

AP

The Americans fretted that China might be losing the stomach to let its currency keep rising in value and China voiced concern about Washington's management of the world's largest economy -- in which China has a huge financial stake.

US. Treasury Secretary Henry Paulson described the talks as "robust" and characterised by "straightforward back-and-forth" exchanges.

Assistant Chinese Finance Minister Zhu Guangyao, asked whether Beijing would keep buying U.S. debt, responded by urging Washington act to protect China's financial interests.

"We hope the U.S. side will seriously consider the Chinese side's concern and protect the interests of Chinese investors," Zhu told a news conference.

Stalled Cars

Investors have been especially sensitive about the fate of the U.S. automobile industry, the failure of which would hit a chain of parts suppliers and financiers that spans the world.

General Motors and Chrysler told sceptical lawmakers they were open to restarting merger talks to secure aid and prevent job losses.

Paulson said the failure of any major U.S. car maker "would be a bad thing." Australia was also trying to protect its automobile business, pledging A$2 billion ($1.3 billion) to help car dealers, while a senior Indian government official told Reuters that policymakers were preparing measures on Saturday to boost the auto sector as well as infrastructure building.

"Concerns have spread that financial institutions including Japanese ones wouldn't be able to escape unscathed if big U.S. automakers were to go bankrupt," said Tsuyoshi Segawa, an equity strategist at Shinko Securities in Tokyo. "We have no idea where and what could happen if a huge corporation like them failed."

To Zero and Beyond

European stocks extended losses, with commodity shares tracking weaker metals and crude prices, while banks slipped on persistent concerns about global economic growth.

The FTSEurofirst 300 index of top European shares was down 2.1 percent at 809.46 points. The benchmark has lost more than 45 percent so far this year.

Oil shares took most points off the index, as crude traded below $44 a barrel, its lowest in about four years. The U.S. economy, in the thick of a year-long recession, probably shed 340,000 jobs in November, according to economists polled by Reuters. The data will be released at 1330 GMT Friday.

Ahead of the employment data later on Friday, dealers priced in a 3-in-5 chance the Fed would cut rates by 75 basis points to 0.25 percent on Dec. 16.

But policymakers have stressed official rate cuts are not having the impact they should because banks are not passing them on or lending freely -- begging the question, what to do next? The Bank of England is considering buying up government debt and flooding markets with cheap cash, an unsourced report from The Daily Telegraph newspaper said.

A chorus of Federal Reserve watchers expect it to its key fed funds rate to zero by January and to expand quantitative measures to pump more liquidity into markets, echoing efforts by Japan to revive its economy in the 1990s.

Asked about quantitative easing, ECB President Jean-Claude Trichet said on Thursday: "If new decisions are needed we will take new decisions." The European Central Bank cut its benchmark rate by 0.75 points to 2.50 percent, the euro zone's biggest cut ever.

Sweden lopped a record 1.75 percentage points off its policy rate to 2.0 percent, while the Bank of England chopped rates by 1.0 point to 2.0 percent, the lowest level since 1951.

British Prime Minister Gordon Brown urged banks on Friday to pass on the cut in the policy rate to help homeowners.

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