"All the indicators point towards a deep recession," said MM Warburg economist Carsten Klude. The Bank of England (BoE) cut rates by a stunning 1.5 points to 3 percent, the lowest level in more than half a century, to combat a slumping housing market, a decline in manufacturing and increased unemployment.
Investors, who had expected a cut of 50 basis points, called the move "astonishing" and "spectacular." The European Central Bank (ECB), covering 15 European nations, met market expectations by reducing its benchmark interest rate 0.5 percentage point to 3.25 percent.
ECB President Jean-Claude Trichet did not rule out a further cut though some analysts called the half-point reduction disappointing considering that the Bank of England acted so boldly. The US Federal Reserve's benchmark rate stands at 1.0 percent.
"The ECB is clearly leaving the door wide open for further interest-rate reductions in the near term ... in the face of ongoing very weak euro zone economic activity, faster rising unemployment and rapidly falling consumer price inflation," said Howard Archer of Global Insight. Inflation pressures eased further when oil fell another 7 percent with US crude down around the $61 range versus a record $147 per barrel in July. London Brent Crude fell below $60 and traded around $57.
STOCKS FALL AFTER RATE CUTS: The Dow and the S&P 500 were off about 4.5 percent. European shares closed down 5.8 percent after Japanese stocks tumbled 6.5 percent. Bad news on the corporate and macroeconomic fronts continued. Toyota Motor Corp, the world's biggest automaker, slashed its annual operating profit forecast by more than half, and its shares tumbled more than 10 percent.
Hobbled US automakers were looking for government aid and prepared to lobby US House of Representatives Speaker Nancy Pelosi. The US consumer historically has been counted on to rescue the economy but the International Council of Shopping Centers called the retail sales environment "simply awful" and said the October results were the worst it had seen in 35 years.
Hedge funds and private equity groups - symbols of the bubble that preceded the credit crunch with their exotic investment instruments and leveraged buyouts - were also hurting. Shares in the world's largest listed hedge fund, Man Group Plc, tumbled more than 30 percent on fears its clients would withdraw even more money.
Private equity giant Blackstone Group LP reported a $509 million third-quarter loss and said it had cut the value of its investments amid turbulent markets. German manufacturing orders plunged 8 percent in September - a fall of 2.0 percent had been forecast - their biggest monthly fall since reunification in 1990. France cut its forecast for growth and Spain reported industrial production fell for the fifth straight month.
In the United States, more disturbing news could come on Friday, when the US Labor Department reports nonfarm payroll data that analysts expect to show another 200,000 jobs lost in October, in addition to the 760,000 that vanished over the first nine months of the year.
MORE STEPS WARRANTED: The IMF said the world's developed economies were headed for the first full-year contraction since World War Two and it now expects 2009 global economic growth of 2.2 percent, down 0.8 percentage point from the forecast it gave in October. While government efforts to cushion the blow were helping, more steps were warranted, the fund said.
"Market conditions are starting to respond to these policy actions, but even with their rapid implementation, financial stress is likely to be deeper and more protracted than envisaged (in October)," the IMF said in a statement.
The global economic crisis was a major factor in the election of Barack Obama on Tuesday as president of the United States. He will take office on January 20, with much of the investment world waiting to see whom he will name as Treasury Secretary. Timothy Geithner, president of the Federal Reserve Bank of New York, former Treasury Secretary Lawrence Summers and former Federal Reserve Chairman Paul Volcker are among those reported under consideration for the post.