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US sees long road to recovery as economic gloom spreads

(Agencies)
Updated: 2008-11-19 16:21

WASHINGTON  – The US Treasury has said it would take time for the world's largest economy to begin to recover despite a massive financial bailout, amid growing fears of a global recession.

Ailing US automakers pleaded Tuesday for emergency help from lawmakers while Japan faced a grim outlook, with economics minister Kaoru Yosano saying he had "no confidence at all" the world's second-biggest economy would grow next year.

US Treasury Secretary Henry Paulson testifies before the House Financial Services Committee in Washington, DC. The US Treasury has said it would take time for the world's largest economy to begin to recover, despite a massive financial bailout, as worldwide fears grew of a recession. [Agencies]

But the head of the European Central Bank, Jean-Claude Trichet, said he had not yet seen deflation trends in the eurozone, which has taken a hit from the global financial crisis.

"On both sides of the Atlantic as well as on both sides of the Channel, we are doing what is judged to be necessary in various situations," Trichet said.

US Treasury Secretary Henry Paulson said American authorities were working to try to shore up the battered economy , but warned there was no immediate relief in sight.

"The crisis in our financial system had already spilled over into our economy and hurt it. It will take a while to get lending going and repair our financial system, which is essential to an economic recovery," Paulson said.

In testimony to the US Congress, he ruled out dipping into a 700 billion dollar financial package to hand out aid to US automakers , saying the focus had to remain restoring the health of the financial sector.

The Democratic-controlled Congress is demanding President George W. Bush's Republican administration use some of the funds to rescue the embattled auto sector and curb an avalanche of mortgage foreclosures.

The chiefs of the "Big Three" US automakers appealed for a share of the bailout fund, warning the whole economy would suffer if the firms went under.

"Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations," said Chrysler chairman and chief executive Robert Nardelli.

Nardelli warned a bankruptcy at any of the Big Three US automakers would have a "devastating" impact on the economy and would cost significantly more than the 25 billion dollars in government-backed loans that Chrysler, General Motors and Ford have requested.

Canada's Industry Minister Tony Clement will meet Wednesday in Washington with Big Three executives to discuss their hopes for a bailout, as 340,000 Canadian jobs depend on the automakers' assembly plants in Ontario province, his office said Tuesday.

Ottawa was asked for help too in rescuing the Big Three, but has remained uncommitted, while assessing options.

US stocks made modest gains Tuesday in another volatile day. The Dow Jones Industrial Average rose 151.71 points (1.83 percent) to finish at 8,424.75 and the tech-heavy Nasdaq was virtually flat, up 1.22 points (0.08 percent) at 1,483.27.

The broad Standard & Poor's 500 index advanced 8.36 points (0.98 percent) to end at 859.11.

Equities markets in Asia and Europe suffered sharp losses however and oil prices fell in a market dominated by concerns over the effect of the slowing global economy on energy demand.

On the New York Mercantile Exchange, light sweet crude for December dropped 56 cents to close at 54.39 dollars.

Investors also appeared uncertain where a much-needed fillip for the global economy would come from after world leaders at a weekend summit vowed to cooperate to bolster growth, but announced no specific measures.

Officials in Japan, which on Monday officially confirmed that it was in recession, said the country now faces the prospect of a full-year of no growth.

"In reality we see few factors that would contribute to positive growth" in the fiscal year starting next April, Economic and Fiscal Policy Minister Kaoru Yosano told reporters.

In Europe, the London FTSE 100 index was down 0.09 percent in mid-afternoon trading, the Paris CAC 40 shed 0.21 percent and the Dax in Frankfurt was flat.

Trading was suspended on both of Russia's main stock markets on Tuesday after they tumbled nearly five percent in the early hours of dealing.

In Britain analysts raised the spectre of deflation, a fall in prices that can stifle growth, after official data showed that 12-month inflation fell to 4.5 percent in October from a 16-year-high of 5.2 percent in September.

The fear is that if deflation -- a persistent fall in overall prices -- takes hold, consumers will put off purchases. And that could drive down demand, employment and wages in a vicious spiral.