Wednesday December 3, 09:52 AM
Prospects brighten for US auto rescue, sparking cautious relief
LONDON (AFP) - The foundering US auto sector faced brighter prospects for a government rescue on Wednesday, lifting investor spirits in Asia despite a warning from China it had lost confidence in western finance institutions.
Asian stocks clawed back lost ground after the US House of Representatives speaker declared that letting the loss-making Big Three US automakers go under was "not an option."
But the rebound did not carry over into trading in Europe, with major exchanges in negative territory in early deals.
The scope and depth of the financial crisis was brought into sharp relief when the head of China's sovereign wealth fund said he had lost confidence in western financial bodies and would not be investing in them.
Lou Jiwei, chairman and chief executive of China Investment Corp (CIC (Paris: FR0005025004 - news) ), said the fund would now avoid investing in banks and other groups because of "uncertain" foreign government policies, the Wall Street Journal reported.
The fund has been a big investor in such groups since it was formed last September.
"We don't know when these institutions will be invested in by their governments," Lou said during a panel discussion in Hong Kong, the Journal said.
"We have to wait for a time when there won't be massive collapses of financial institutions."
Lou added he had "lost confidence from the lack of consistent government policies concerning support for western banks. There is really no protection on my investment," the report said.
CIC bought a 9.9-percent stake in Morgan Stanley (NYSE: MS - news) last December and also owns more than 10 percent of private-equity firm Blackstone (NYSE: BX - news) , after upping its original stake as recently as October.
In London Queen Elizabeth II was to announce the British government's legislative programme for the next year, with the emphasis likely on bolstering the economy against further mayhem.
Ministers are under heavy pressure to introduce measures that would force Britain's banks -- some of which are now part state-owned -- to do more to help businesses weather the financial storm.
Finance minister Alistair Darling, who unveiled a 20-billion-pound (24-billion-euro, 31-billion-dollar) economic stimulus plan last Monday, has said further radical steps may be necessary.
"You'd be very foolish indeed to say, 'Well that's job done'," Darling told Sunday's Observer newspaper."You know this is something that needs constant attention."
What emerged last year as principally a finance sector crisis has now infected the broader economy, with analysts at the Organisation for Economic Cooperation and Development warning that global joblessness could rise by 8.0 million by 2010.
Italian telecommunications group Telecom Italia (Milan: TIT.MI - news) disclosed on Wednesday that it would cut a further 4,000 jobs in Italy from 2009 to 2011 as part of a restructuring plan, taking the total number of job losses to 9,000.
The group, which employs 66,000 people in Italy and is saddled with a debt of 35 billion euros, launched an overhaul and a return to fundamentals last March.
"Market conditions and the real economy have shown since then that it is still necessary to make debt reduction a priority," said Telecom Italia managing director Franco Bernabe.
With the fabled US industry now teetering on the brink of extinction, automaker General Motors (NYSE: GM - news) reported a 41 percent drop in November domestic sales.
The automaker blamed the global economic crisis and credit freeze for its poor results and estimated that total demand for all brands in the US market fell by more than 34 percent in November.
Ford Motor Company reported a 31 percent drop and Chrysler said its US sales plunged 47 percent.
The Big Three submitted plans to Congress for their survival and requests for emergency aid. GM said it needed up to 18 billion dollars, while Ford requested as much as nine billion and Chrysler asked for seven billion in loans.
The auto makers, which appeared before Congress two weeks ago, this time went away with at least a vague hint that help could be on the way.
House speaker Nancy Pelosi said on Tuesday that a short-term loan programme "is an appropriate way to go."
She said: "I believe an intervention will happen, either from the administration or legislatively."
She also said: "I think it's pretty clear that bankruptcy is not an option. It takes too long. What bankruptcy achieves in a year we can do in a matter of weeks, that's why the short-term loan is an appropriate way to go."
Hopes that the US industry could be saved, after boosting sentiment in Asia, failed to have the same effect in Europe. The London FTSE 100 index was down 0.93 percent, the CAC 40 (Paris: news) in Paris 1.95 percent and the Dax (Xetra: news) in Frankfurt 2.06 percent in early deals.
Stocks rose 4.1 percent in Shanghai, 1.8 percent in Tokyo and 0.2 percent in Sydney, after substantial falls Tuesday. The Hong Kong market was up 1.4 percent.
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