Japan readies funding for IMF

Investors were spooked by worries that massive capital injections and emergency regulatory measures have failed to halt a freefall in markets and damage to the real economy.

Even China, which unveiled a 4 trillion yuan 586 billion stimulus package over the weekend, is increasingly showing the ill effects of a global slowdown, with annual industrial output growth slumping to 8.2 per cent in October, its weakest showing since Oct. 2001.

8220;It8217;s a horrible looking figure. It8217;s a shock figure,8221; said Ben Simpfendorfer, economist at Royal Bank of Scotland in Hong Kong.

8220;If the fiscal stimulus package starts to get any traction it should help to stabilise the figure in the first quarter. But we can8217;t rule out GDP growth as low as 5 per cent in the first half of next year,8221; he said.

In Tokyo, Mizuho Financial Group was considering raising 3.2 billion to shore up its capital, according to a media report, in the latest sign that Japan8217;s huge banks may have avoided big subprime losses but can8217;t hide from the weaker overall economy and heavy exposure to stocks.

Markets in Asia were broadly lower on Thursday following a Wall Street selloff that sent the Nasdaq to a 5-year low.

Tokyo shares were off more than 5 per cent and stocks elsewhere in the region down nearly as much. The price of oil fell to a 22-month low at 55 a barrel on worries that a recession will curb demand.

In a bid to bolster stocks, Australia moved to impose a permanent ban on so-called naked short-selling, the practice whereby hedge funds sell shares they neither own nor have borrowed in the hope of quickly buying them back at a discount.

Japan, meanwhile, prepared to offer foreign reserves worth up to 10 trillion yen 106 billion to the International Monetary Fund if the Washington-based lender needs extra funds to help emerging economies, a Japanese government source said on Thursday.

Prime Minister Taro Aso will make the proposal at the global financial summit that will take place among leaders of the Group of 20 industrialised and emerging nations starting on Friday in Washington, a source said, confirming a media report.

PAULSON DEFENDS CHANGE

In Washington, Paulson defended a change in plans for the bailout package.

8220;I will never apologize for changing an approach or strategy when the facts change.8221;

Paulson8217;s announcement drew criticism and added to worries stoked by dismal employment data from Britain and a World Bank warning Tuesday that global trade may contract in 2009.

8220;It is shocking to see the US government deciding not to use any of the 700 billion on buying mortgage-related assets,8221; Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong, said in a morning note.

8220;Declining house prices and falling values of mortgage-related securities are the primary reason for the current crisis, and abandonment of attempts to tackle these problems head-on will prolong the recession,8221; he wrote.

The combination of tight credit conditions and a global downturn has set off what economists say has become the worst financial and economic crisis in 80 years and left investors bracing for more interest rate cuts.

The crisis also continued to take a toll on companies, with top US electronics retailer Best Buy reporting it had cut its full-year growth outlook, boosting fear about the impact of slower consumer spending on the US economy.

Paulson said that nonfinancial firms as well as banks may need more cash infusions but that he saw 8220;implementation difficulties8221; aiding companies not federally regulated.