The U.S. economy contracted in the third quarter as the financial crisis raged, while Japan and Germany said they would spend billions of dollars to provide a cushion against a deep global recession.

The spending measures would complement a series of interest rates cuts, including those from China, Norway and the United States on Wednesday.

Japan may cut rates on Friday and the European Central Bank, Britain and Australia are expected to follow next week, coming on the heels of data that showed a rapid deterioration in major economies.

“A harsh storm seen only once in 100 years is raging,” Japanese Prime Minister Taro Aso told a news conference.

The president of the San Francisco Federal Reserve Bank, Janet Yellen, called recent trends in the U.S. economy “deeply worrisome.”

The first Fed official to speak after Thursday’s news that the U.S. economy contracted in the third quarter, Yellen said the U.S. federal funds rate could potentially go “a little lower” than 1 percent, one day after the Fed cut its benchmark lending rate by a half percentage point. ID:nN30284413

“The mortgage meltdown is far from over, the economy and financial markets are still reeling from it,” she said.

The world’s largest economy shrank at a 0.3 percent annual rate in the third quarter, the sharpest contraction in the United States in seven years. U.S. consumers slashed spending at the sharpest rate in 28 years in the third quarter, undermining growth. ID:nN29534671

CREDIT MARKETS THAW

The economy also suffered in the third quarter as businesses cut investment. More companies announced payroll cuts on Thursday. Credit card issuer American Express Co said it would chop 7,000 jobs, while cellular phone maker Motorola Inc said it would lay off 3,000 workers. ID:nN3097788 ID:nN30478862

However, the data on the gross domestic product was not as bad as many had feared, which along with the global rate cuts and signs of a thaw in credit markets helped push U.S. stocks .DJI> up about 2 percent.

The gains brought stability to a market that had fallen to 5-1/2-year lows this month, ravaged by the credit turmoil. U.S. stocks are still down about 15 percent just this month.

European shares .FTEU3> lost much of their earlier gains but still closed higher.

Japan’s benchmark Nikkei average index closed up 10 percent, a third straight day of gains that have lifted the index 26 percent. However, like most markets in the world, the Nikkei remains down more than 40 percent this year.

Even as the markets edged higher, there remained some big pockets of weakness, including insurance, which has been discussed as a possible recipient for U.S. bailout funds.

Hartford Financial Services Group Inc shares lost more than half their value, sinking to an all-time low, a day after the company had what its chief executive described as the worst quarter in its 198-year history, stoking concern it may need to raise even more capital. ID:nN30172795

“What we see is the world getting much worse,” Lazard Ltd Chief Executive Bruce Wasserstein said in an interview with Fortune Magazine that was open to the media. “The financial system has a long way to go” before rebounding, the legendary dealmaker said.

U.S. AUTO BAILOUT URGED

As U.S. banks began announcing the terms under which the government had injected billions of dollars in capital into them, they reiterated pleas to the U.S. Treasury Department to clarify whether participating in the $250 billion program would force them to cut executive pay or bar them from paying dividends. ID:nN30261535

Still, encouraging news emerged from the banking sector. Closely watched rates on bank-to-bank borrowing fell on Thursday, helped by the U.S. Federal Reserve’s rate cut on Wednesday and currency swap lines to ease a scramble for dollars around the world. ID:nLU506449.

Also, the supply of U.S. commercial paper rose on Wednesday, signaling a Federal Reserve program to buy the securities appears to have revived this crucial part of the credit market. ID:nN303285

U.S. banks’ direct borrowing from the Federal Reserve decreased last week but remained at very high levels, even as the central bank made loans directly to businesses for the first time ever. ID:nN30292043

There have been fewer positive signs for the auto industry, and a lobby group for top U.S. chief executives said the Treasury should use some of the funds from the bailout legislation to provide direct capital injections to automakers and their finance companies. ID:nN30284320

But a Bush administration official said the Treasury Department was not negotiating with General Motors Corp and the owners of Chrysler LLC on a request to provide direct government aid to their proposed merger.

The U.S. GDP data came five days before the U.S. presidential election and candidates seized on the report as a chance to take swipes at their rival’s plans.

Democratic nominee Barack Obama called the contracting economy “a direct result” of Bush administration policies that he said Republican nominee “John McCain has embraced for the last eight years and plans to continue for the next four.”

The McCain camp fired back that “Barack Obama would accelerate this dangerous course. … John McCain offers a new direction and a real choice.”

BRAZIL AIMS TO DODGE DOWNTURN

Japan, the world’s second biggest economy, unveiled a 5 trillion yen ($51 billion) package of spending measures to support its economy.

“I am certain that what is most important is to remove uncertainties from the lives of people,” said Japan’s prime minister. ID:nT214217

Germany planned to introduce a range of steps worth up to about 30 billion euros ($39.17 billion) to boost investment in Europe’s biggest economy. ID:nLU739680

The package will include support for car makers and building renovation as well as tax breaks enabling companies to write off a share of their investments, German newspapers reported.

Governments are desperate to put measures in place to protect their economies against recession, which euro-zone statistics suggested has hit much of Europe.

Economic sentiment in the 15-nation currency bloc plunged to its lowest level since 1993 in October, official data showed.

Brazil’s top economic officials said the global financial crisis will not push the country into a recession and that the central bank would unveil a new lending facility for exporters suffering from a credit crunch. ID:nN30289603

Poor corporate earnings and forecasts for 2009 from companies from Eastman Kodak Co to British advertising firm WPP Group to Japanese automaker Mitsubishi Motors Corp supported the view that the downturn would be long-lasting.

Source: http://www.afxnews.com

The cost of borrowing dollars in Asia fell for the third straight day on Friday, as moves by central banks across the world to improve the availability of dollars infused confidence in financial markets.

The Bank of Japan was the latest central bank to cut interest rates following similar moves by the U.S. Federal Reserve and central banks in China, Hong Kong and Taiwan.

The BOJ cut its overnight call rate target to 0.30 percent from 0.50 percent, its first reduction in seven years.

Meanwhile, policymakers at the European Central Bank said it could cut interest rates next week as eurozone economic growth could be close to zero next year.

“We see clear commitments from central banks around the globe, that they are prepared to provide sufficient liquidity to get markets functioning again,” said Patrick Bennett, Asia foreign exchange and rates strategist at Societe Generale.

Interbank overnight dollar deposits were quoted around 0.4 percent in Hong Kong, around 0.3 percent in Kuala Lumpur and 0.40-0.90 percent in Singapore.

On Thursday, rates for overnight dollar funds were quoted at 0.75-1.0 percent in Hong Kong, 0.7 percent in Kuala Lumpur and 0.75-1.25 percent in Singapore.

In response to the Fed’s new target rate of 1.0 percent, the overnight rate on unsecured dollars in the London interbank market was set at 0.73125 percent, its lowest since at least 2001.

STILL NOT NORMAL

And although the premium or spread paid for borrowing three-month dollars over anticipated central bank rates, the Libor/OIS spread has been narrowing, analysts say the differential needs to reduce further.

“Levels are still not normal yet, if you look at the LIBOR versus OIS or LIBOR versus the policy rate, there is still a big spread. There is more work for the Fed to be done,” said Edward Lee Wee Kok, Asia head of fixed income strategy at Standard Chartered Bank.

Although liquidity conditions are slush in the overnight lending market, the situation is not the same in the term money market where some banks are somewhat hesitant to lend.

Three-month dollar deposits were quoted at around 3.1 percent in Hong Kong, around 3.0 percent in Kuala Lumpur and 3.0-3.75 percent in Singapore, traders said.

On Thursday, rates for three-month dollar funds were quoted at 2.75-3.25 percent in Hong Kong, 4 percent in Kuala Lumpur and 3.25-3.75 percent in Singapore, traders said.

“There are concerns about the longer term sustainability of various institutions and their capital adequacy ratios,” said V. Anantha Nageswaran, head of investment research, Asia-Pacific with Bank Julius Baer.

There was a similar trend in some local currency interbank markets where short term rates dropping at a faster pace.

In Hong Kong, the one-month Hibor was fixed at 2.10500 percent at 0315 GMT, down 34 basis points from Thursday and its lowest level since Sept. 16.

But longer-dated interbank rates inched higher from the previous day, due to a rise in Hong Kong dollar forwards amid weakness in the stock market and lingering concerns about credit risk.

The six-month Hibor was set at 3.49286 percent, higher than the previous 3.44286 percent.

Source: http://www.afxnews.com

The following is a table of preliminary oil production data in kiloliters.

                                    Change From
                    Sep 2008        Sep 2007
All Oil Products
Production:        15,787,197          -8.2%
Imports:            2,851,001          +1.4%
Sales:             15,533,393         -11.9%
Exports:            2,832,419          +5.3%
Inventories:       14,574,933          +6.3% 

Gasoline
Production:         4,402,402          -8.7%
Imports:               72,543         +17.4%
Sales:              4,770,138          -8.8%
Exports:               26,104          +2.9%
Inventories:        2,057,130         +15.2% 

Naphtha
Production:         1,458,415         -14.0%
Imports:            2,354,942      unchanged
Sales:              3,468,361         -11.8%
Exports:                    0            NA
Inventories:        2,187,860         +15.1% 

Jet Fuel
Production:         1,578,225         +15.6%
Imports:                    0            NA
Sales:                468,044          -5.4%
Exports:            1,133,713         +19.0%
Inventories:        1,066,184         +15.7% 

Kerosene
Production:         1,222,822          -9.0%
Imports:                    0            NA
Sales:                666,499         -37.8%
Exports:               66,580         -54.8%
Inventories:        3,840,768          -7.9% 

Gasoil
Production:         3,520,776          -0.2%
Imports:               28,164         +14.2%
Sales:              2,908,364          -4.9%
Exports:              952,106         +18.6%
Inventories:        2,146,142         +27.6% 

A-Fuel Oil
Production:         1,321,872         -17.0%
Imports:                6,468            NA
Sales:              1,309,598         -19.4%
Exports:               23,909         -43.0%
Inventories:        1,316,248         +10.2% 

B-Fuel/C-Fuel Oil
Production:         2,282,685         -19.9%
Imports:              388,884          +5.0%
Sales:              1,942,389         -12.3%
Exports:              630,007         -12.6%
Inventories:        1,960,601          -4.4% 

Inventories represent stocks at oil refineries
NA = not available
Source: Ministry of Economy, Trade and Industry
Preliminary Monthly Oil Statistics