LONDON/HONG KONG (Reuters) - The global financial crisis shifted gears on Thursday with fears of recession battering financial markets even as governments sought yet more action to pull the world economy from the brink of collapse.

European Union leaders, meeting in Brussels, were to call for action to combat economic decline, including support for industry, according to a summit draft obtained by Reuters.

Switzerland's two largest banks -- UBS and Credit Suisse -- became the latest to say they were receiving emergency funding as the country's government and other investors moved to shore them up.

Japan's Prime Minister Taro Aso said Washington may need to pump yet more cash into its banks to restore investor confidence.

The European Central Bank said it would provide up to 5 billion euros ($6.83 billion) to Hungary to p opened down more than 4 percent and Japan's benchmark Nikkei lost more than 11 percent.

RECESSION FEARS

Investors' focus appeared to be shifting from the ravaged financial system -- the biggest such crisis in nearly 80 years -- to the backdrop of a declining world economy.

A Merrill Lynch poll released on Wednesday showed 84 percent of fund managers believe the world is heading for a recession.

The biggest monthly fall in U.S. retail sales in more than three years underlined the gloom, with the price of oil hitting a 13-month low below $73 on fears of a collapse in demand.

In Japan, meanwhile, a Reuters poll showed manufacturing business sentiment hit a 6-year low this month, in yet another signal the world's second-biggest economy was headed for a downturn.

"This is the end of the beginning. We are going from a situation in which the banks were the main actors in the crisis to a situation where the real economies will be next," Marino Valensise, chief investment officer of Baring Asset Management, said in Hong Kong.

France, Germany and Britain called on Wednesday for leaders of the Group of Eight major industrialized countries to gather next month with the heads of emerging economies to consider a radical overhaul of the world's 60-year-old financial architecture.

The White House said G8 leaders were expected to meet this year on the worst financial crisis since the 1930s Great Depression.

But Japan's Aso, who is chairing the Group of Eight this year, again expressed caution about such a summit.

"Holding such a meeting would mean we are just one step away from a worst-case scenario," Aso said in parliament. "We are considering the idea, but it is most important to keep the situation from worsening to that stage."

Governments around the world have pledged $3.2 trillion in emergency measures -- roughly equivalent to the economic output of Germany or China -- including taking stakes in banks to help them stabilize, rallying world markets on Monday and Tuesday.

But optimism quickly gave way to fears that government intervention would not save major economies from recession.

With the U.S. presidential election less than three weeks away, Arizona Republican Sen. John McCain has proposed spending $300 billion of the $700 billion plan on buying shaky mortgages and replacing them with more affordable home loans. He is also calling for $52.5 billion in tax cuts.

Illinois Democratic Sen. Barack Obama has offered a $60 billion package of tax measures, infrastructure spending, loan guarantees for automakers, help for struggling homeowners and a 90-day moratorium on home foreclosures, among other steps.

(Editing by Mike Peacock)

  Add comment

Name:
E-Mail:
Comment:
Enter code: