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Japan’s exports to Asia fell in October for the first time since 2002, showing that the fallout from the credit crisis has spread to neighbors such as China and adding momentum to investors’ flight to the safety of cash.

Capital flight from emerging markets drove the currencies of South Korea and Indonesia to their lowest levels since the Asian financial crisis a decade ago. India’s rupee hit a record low.

Asian markets suffered the same battering that drove U.S. and European stocks to their lowest levels in 5- years on Wednesday. Japan’s Nikkei tumbled 6.9 percent, while the MSCI All-Country World Index hit its lowest level since May 2003, dragged down by Asian shares.

Shipments to Asia had previously cushioned the impact on Japanese exports of weakening demand from the United States and Europe. But data on Thursday showed they fell 4 percent in October from a year earlier.

The drop in Japanese exports contributed to mounting signs elsewhere that the global slowdown could get worse.

The Federal Reserve forecast that the U.S. economy would contract through the first half of next year and signaled it was ready to cut interest rates further, while U.S. consumer prices last month posted their biggest drop on record.

“The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Hopes that Asian economies, particularly China, could help prop up global growth have begun to fade as weaker demand in the United States and Europe has quickly translated into slowing factory output and job cuts cash in 1 hour.

Underlining the extent of Beijing’s concerns over its own slowdown, Minister of Human Resources and Social Security Yin Weimin said on Thursday that stabilizing employment is now the government’s top priority.

The worrisome outlook sent bonds surging. The yield on Japanese 10-year government bond futures fell to as low as 1.430 percent on Thursday, the lowest since early October, while the U.S. Treasury two-year yield hit a record low at one point.

Financial bookmakers expect worries over a lengthy economic downturn to send the leading European benchmark indexes as much as 2.4 percent in early trade on Thursday.

CHIP MAKERS HIT

Corporate news helped fuel the rush to safe havens.

Citigroup Inc shares tumbled 23 percent on Wednesday to a 13-year low, as investors questioned the survival prospects of the U.S. banking giant on concerns about mounting losses from credit cards, mortgages and toxic debt.

Friedman Billings Ramsey analyst Paul Miller said in a research note that the U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to firm up banks’ balance sheets and improve liquidity in credit markets. 

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Stocks slumped Friday, with investors abandoning a recovery attempt, as the worst retail sales on record ignited fears of a long recession.

The Dow Jones industrial average (INDU) fell 338 points, or 3.8%. Earlier, the blue-chip indicator had lost as much as 363 points and gained as much as 88 points.

The Standard & Poor’s 500 (SPX) index skidded 4.1% and the Nasdaq composite (COMP) shed 5%.

All three major gauges slid on the week as well, with the Dow losing 5%, the S&P down 6.2% and the Nasdaq down 7.9%.

Stocks crumbled through the early afternoon as investors considered the bleak outlook for consumer spending amid the weak retail sales report. Selling pressure eased up in the middle of the afternoon and then returned near the close.

"The recession has been mild up to this point, but I think we’re in for a much uglier one in the fourth quarter," said Scott Anderson, senior economist at Wells Fargo. "The retail sales report demonstrates that."

U.S. sales in October posted the worst monthly decline since the Commerce Department initiated the current measurement standard in 1992.

The corporate news Friday was just as bad. Freddie Mac posted a big quarterly loss. Sun Microsystems announced massive job cuts and Citigroup is reportedly getting ready to announce layoffs.

"Fundamentally the economy is very weak," said Robert Brusca, chief economist at FAO Economics. "The Freddie Mac losses are a reminder of that."

Stocks rallied Thursday, with the Dow gaining 552 points, its third-best single-session point gain ever, as the market bounced back from levels not seen since 2003. Some analysts said that the recovery was significant in helping to establish a bear market bottom.

However, after such a rally, stocks were vulnerable to a pullback Friday, particularly after the retail sales report.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost four to one on volume of 1.45 billion shares. On the Nasdaq, decliners topped advancers by more than three to one on volume of 2.31 billion shares.

After the close, Fidelity said it was cutting an additional 1,700 jobs in the first quarter of 2009 as part of an ongoing cost-cutting effort. A week ago the company said it was cutting 1,300 jobs

Retail sales: Retail sales fell 2.8% in October versus a revised 1.3% drop in September. Sales excluding volatile autos fell 2.2% in October, versus a revised 0.5% drop in September. Both results were worse than expected, according to a survey of economists by Briefing.com. (Full story)

"Sales were pretty awful across the board," Anderson said, noting that sales plunged pretty much everywhere other than at grocery stores and on health care. "With consumers only spending on the essentials, that’s pretty dire."

Also on Friday, retailers J.C. Penney (JCP, Fortune 500) and Abercrombie & Fitch (ANF) both reported lower quarterly earnings and issued bleak forecasts for the critical fourth quarter.

A separate report showed a slight improvement in consumer sentiment, according to the latest survey from the University of Michigan. Sentiment rose to 57.9 in November from 57.6 in late October, versus forecasts for a decline to 57.

Investors were also gearing up for the Group of 20 meeting in Washington, which gathers leaders from around the world to address the global financial crisis. It kicks off with a White House dinner Friday. (Full story)

The European economy is officially in a recession, EU leaders said Friday. Germany has already said it is in a recession. Hong Kong is in a recession. And many economists think the U.S. is in a recession, despite a lack of official declaration creditscore.

Recession is generally defined as two consecutive quarters of shrinking economic growth. In the U.S. a recession is officially declared by the National Bureau of Economic Research.

Speaking early Friday, Federal Reserve Chairman Ben Bernanke said that financial markets remain under severe strain. He pledged to continue working with central banks around the world and seemed to indicate the U.S. federal reserve could cut interest rates again at the December meeting. (full story)

Company news: Troubled mortgage giant Freddie Mac (FRE, Fortune 500) reported a steep $25 billion quarterly loss and said it will start chipping away at the $100 billion in taxpayer funds set aside for its bailout. (Full story)

Sun Microsystems (JAVA, Fortune 500) said Friday it will cut up to 6,000 jobs, or 18% of its workforce, as a cost-cutting measure. The software and computer networking company also said it was restructuring its software business operations.

Citigroup (C, Fortune 500) is reportedly getting ready to lay off another 10,000 people on top of the 23,000 it has already let go, according to a Wall Street Journal story Friday. The company is also expected to boost credit card rates, the report said.

Nokia (NOK) said fourth-quarter sales for the broad mobile handset industry will decline. The phone maker said worse credit conditions and the weak economy were to blame.

Hartford Financial Group (HIG, Fortune 500), the troubled insurer, said it has purchased a small bank, making it eligible to receive up to $3.4 billion in funds from the government’s bailout plan.

Investors again pulled money out of equity mutual funds last week, following the first week in months in which investors added money to funds.

In the week ended Nov. 12, investors pulled roughly $31.8 billion out of equity mutual funds, according to tracking firm Trim Tabs. In the previous week, investors added roughly $2.2 billion to funds. However, that one week was an anomaly, with investors cashing out of funds in 15 of the last 16 weeks amid the stock market selloff.

Other markets: Asian and European markets rallied in response to the U.S. advance Thursday.

The dollar gained against the euro, but fell versus the yen.

COMEX gold for December delivery rallied $42.50 to settle at $742.50 an ounce.

U.S. light crude oil for December delivery fell $1.20 to settle at $57.04 a barrel on the New York Mercantile Exchange.

Gasoline prices dipped another 2.6 cents to a national average of $2.152 a gallon, according to a survey of credit-card activity released Friday by motorist group AAA. The decline marks the 58th consecutive day that prices have decreased. During that time, prices dropped by $1.70 a gallon, or 44.2%.

Lending rates: The cost of borrowing rose modestly Friday, but remained near recently improved levels.

The 3-month Libor rose to 2.24% from 2.15% Thursday, according to Bloomberg.com. Overnight Libor rose to 0.56% from 0.4% Thursday, and up modestly from an all-time low of 0.32% last week. Libor is a key interbank lending rate.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.11% from 0.19% Thursday, with investors preferring to take a small return on their money than risk the stock market. In September, the 3-month yield reached a 68-year low around 0% as investor panic peaked.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.72% from 3.86% Thursday. Treasury prices and yields move in opposite directions. 

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The number of people unemployed in Switzerland rose in October as a gloomy outlook for the world economy prompted companies to scale back their payrolls.

The seasonally adjusted number of people without jobs increased by 1,204 to 102,319 from September, the State Secretariat for Economic Affairs in Bern said today. The jobless rate held at 2.6 percent, in line with the median of 14 economists' forecasts in a Bloomberg News survey.

Swiss companies may pare their workforces further in coming months as the financial-market crisis pushes up lending costs and a global slowdown hits order books. Swiss leading indicators declined to the lowest in more than five years in October. The Swiss central bank yesterday unexpectedly trimmed borrowing costs to counter a deepening economic slowdown.

“The Swiss labor market is still rather robust, but of course that won't last,'' said Dirk Faltin, a senior economist at UBS Wealth Management Research in Zurich in an interview with Bloomberg Television. The Swiss National Bank's decision to lower the key rate “was the right signal in this situation.''

The SNB yesterday trimmed its three-month Libor target by 50 basis points to 2 percent, the biggest cut in more than five years, after the Bank of England lowered borrowing costs more than economists expected by 150 basis points bad credit payday loans. The European Central Bank yesterday cut its key rate by 50 basis points.

The Zurich-based SNB said that the economic outlook has “deteriorated more severely than anticipated'' and the Swiss economy may fail to grow in 2009. The International Monetary Fund yesterday predicted economic contracts in the U.S., Japan and the economy of the 15 euro nations next year.

Adding to signs of slowdown, Swiss manufacturing contracted for a second straight month in October and exports declined for the first time in almost four years in September.

Clariant AG, the world's biggest maker of chemicals, is cutting 2,200 jobs, or 10 percent of its workforce, through 2009 as it seeks to boost profitability. The Muttenz, Switzerland-based company said Nov. 4 it will need to cut costs further as slumping automotive and construction industries and slowing growth in China hurt revenue.

The unadjusted jobless rate rose to 2.5 percent in October from 2.4 percent in the previous month partly as weather-sensitive industries such as forestry and agriculture reduced their workforce. The number of open jobs increased by 369 to 14,132 from September, today's report showed.

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Chinese President Hu Jintao said maintaining his country's economic growth rate, the fastest among major economies, is the best way to combat a credit crisis that threatens a global recession.

“The fundamentals of the Chinese economy have not changed,'' Hu said at the opening of a biennial summit of Asian and European leaders today in Beijing and after China reported its slowest growth in five years in the third quarter. “We must first and foremost run our own affairs well.''

The two-day Asia-Europe Meeting, known as ASEM, is the first between Asian leaders since bank failures, plunging stock markets and weakening currencies amplified fears that the world is headed for a prolonged economic decline. China was pressed ahead of the meeting to get more involved in combating the crisis by attendees, including European Commission President Jose Barroso.

“It is an obligation for us to work together,'' French President Nicolas Sarkozy said during a speech at the opening ceremony, where he appealed for support for European efforts to ease the crisis. “Europe needs Asia, it needs Asia's growth, Asia's intelligence and its creativity.''

China is seen as key to any global response because it has the world's fastest-growing major economy and $1.9 trillion of currency reserves, an amount larger than Canada's gross domestic product.

Credit Freeze

Credit markets have frozen worldwide amid $660 billion in mortgage-related losses that have forced central banks to pump $2 trillion into bailouts for failing financial institutions. The benchmark MSCI Asia Pacific Index has plunged 49 percent this year.

China “appreciates'' measures taken by other countries and pledged to coordinate policy to help cope with financial turmoil, Hu said. China also called for increased international cooperation to create a “fair and equitable'' global financial system and urged the International Monetary Fund to increase its surveillance, according to a statement from the Ministry of Finance.

A draft agreement from summit leaders on the financial crisis echoed China's wishes, saying the IMF should “play a critical role'' in assisting countries affected by the crisis, according to a copy published by Reuters.

China has also agreed with 10 Southeast Asian nations, along with Japan and South Korea, to finalize a proposed $80 billion fund to shore up Asian exchange rates by the end of the year, Surin Pitsuwan, Secretary General of the Association of Southeast Asian Nations, said in an interview with Bloomberg Television freecreditreport.

China's Response

The ASEM meeting is one of several in the coming weeks that will focus attention on China's response to the crisis.

President George W. Bush has invited leaders from the Group of 20 industrialized and developing nations — including China - -to attend a Nov. 15 summit in Washington, 11 days after the U.S. presidential election.

Finance ministers from the Asia-Pacific Economic Cooperation group gather in Trujillo, Peru, starting Nov. 6. APEC's heads of state get together in Lima on Nov. 22. The G- 20's finance ministers and central bank governors convene in Sao Paulo beginning on Nov. 8.

Thailand has proposed that China ease currency-conversion restrictions to facilitate the pooling of reserves and create a $350 billion fund to protect the region's currencies and buy stocks and bonds, said Thailand's Deputy Prime Minister, Olarn Chaipravat, in an interview in Bangkok on Oct. 22.

“The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, relative to anybody, to be the rightful and anointed convertible currency of the world,'' he said.

Crisis Lessons

Lessons from the Latin American debt crisis and Asian financial crisis are that mechanisms must be put in place rapidly to aid vulnerable markets, and China is one of the few countries with resources to play a leadership role, wrote Citigroup Inc. Senior Vice Chairman William Rhodes in the Financial Times.

China will be forced to take proposals from other Asian countries seriously, said Steve Tsang, a fellow in modern Chinese studies at St. Anthony's College, Oxford, U.K.

“If the region is financially destabilized, it will have more of an impact on China'' than the banking crisis in the U.S. and Europe, where a slowdown in consumer spending may choke off demand for Chinese products, Tsang said.

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DETROIT (AP) — General Motors Corp. and Chrysler LLC have held preliminary talks about a merger or an acquisition of Chrysler by GM, according to published reports Saturday.

The Wall Street Journal, citing people it described as familiar with the discussions, said Cerberus Capital Management, the private equity firm that owns 80.1 percent of Chrysler and 51 percent of GMAC Financial Services, proposed trading Chrysler’s automotive operations to GM. The Journal said Cerberus would receive GM’s remaining 49 percent stake in GMAC.

The New York Times, also citing people familiar with the talks, said the automakers were discussing a merger. The Times did not mention GMAC, a traditional auto lender hit hard by the housing market downturn.

The talks have stalled because of the recent turmoil in the financial markets, according to the Journal. Its sources said negotiations could resume if markets stabilize because both GM and Cerberus want to quickly divest the assets under discussion.

The negotiations between 100-year-old GM and 83-year-old Chrysler began more than a month ago, according to the Times. Its sources said the chances of a merger were "50-50" as of Friday and likely would take weeks to complete.

Both newspapers posted their stories on their Web sites late Friday.

"Without referencing this specific rumor, as we’ve often said, GM officials routinely discuss issues of mutual interest with other automakers," GM spokesman Tony Cervone said.

Chrysler spokeswoman Shawn Morgan declined comment.

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The dollar sank against most foreign currencies Tuesday, as the still-frozen credit markets led a majority of investors to believe the Federal Reserve will step in with rate cuts, in addition to buying loans crucial to business.

In a speech before the National Association of Business Economics in Washington on Tuesday, Fed Chairman Ben Bernanke signaled that the U.S. central bank may be getting ready to cut interest rates. He said the Fed will consider the appropriateness of its monetary policy given the state of the economy.

The Fed announced earlier Tuesday it would take action to backstop the commercial paper market, by purchasing companies’ short-term debt. That sparked more speculation that the bank needs to cut rates in its meeting Oct. 29 - or even before that in emergency action.

On the Chicago Board of Trade, futures indicated a 48% chance that the Fed will lower its rate to 1.5% from 2%, and the futures showed a 58% chance that the rate will be cut to 1.25%.

The U.S. central bank could choose to lower its key funds rate, which is a rate banks charge other banks to borrow money, in an attempt to further encourage lending and thereby return the normal flow of credit to businesses.

But rate cuts are also inflationary, worrying dollar investors that their investments will devalue over time as the Treasury prints more money.

Euro: Due partly to these concerns, the euro traded at $1.3615 as of 4 p.m. ET. That’s up from $1.3498 on Monday. At one point on Monday, the euro hit $1.3443, the lowest level the currency has seen since Aug. 20, 2007.

But while investors seem to expect the United States to cut rates, they aren’t quite holding their collective breath yet for Europe to do the same.

"The European Central Bank hasn’t sent a clear signal that it will decrease rates anytime soon," said Rivera, currency strategist with Forex Capital Markets. "The much higher expectations that the Fed will cut rates are weighing on the dollar."

British rate cut: Speculation is brewing, however, about a possible rate cut in the U (paydayloans).K. when the Bank of England meets on Thursday, which held the British pound back a bit from achieving the same gains that the euro saw.

At 4 p.m. ET, the British pound bought $1.7483, up from Monday’s $1.7438 level. At one point Monday, the U.K. currency sank as low as $1.7335, the lowest point the pound has seen since March 13, 2006.

Yen: The dollar fell 0.6% against the yen to ¥101.31 after a historic collapse the day before. The dollar fell as low as 4.8%, or ¥100.23 during Monday trading - the biggest one-day drop ever. The dollar recovered a bit from hitting a 6-month low, ending the day at ¥101.82.

The yen was actually down as much as 1% earlier in the day when Australia’s central bank slashed rates early Tuesday and ECB President Jean-Claude Trichet said the bank would continue to provide liquidity to financial institutions for as long as needed.

The yen typically increases when investors show aversion to risk.

But the Fed’s plans may be a long-term positive for the dollar. With global economies struggling, the United States may in fact have the best chance to recover first.

"It’s a coin flip," said Rivera. "If they have to take measures like this, it may heighten concerns, but the whole concerted effort can be seen as a bottom, and we may start seeing buyers come into the market with confidence that the credit crisis is almost over."

In fact, the euro and pound had been much higher against the dollar before Bernanke’s speech. One analyst says some investors were encouraged that the rate cuts will eventually help the economy.

"There is some reassurance coming back into the marketplace," said Garreth Sylvester, senior currency strategist with HFIX. "Bernanke said he was confident in the measures taken to stifle current climate, and suggested the Treasury’s [financial rescue] plan may be enough." 

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Sarah Palin gets a lot of credit for standing up to Big Oil in Alaska, but if she and John McCain win the White House, don’t expect some of her more populist policies to survive the move to Washington.

In her two years as Alaska’s governor, Palin is credited with being tough on big oil, to the benefits of her constituents and bucking her own party.

In late 2007 Palin succeeded in raising the tax on oil companies from 22.5 to 25% of net profits. Alaska also added a clause increasing the tax for each dollar oil goes above $52 a barrel - essentially, a windfall profits tax.

Palin also killed a deal struck between Exxon Mobil, BP, and ConocoPhillips and Alaska’s previous governor to build a natural gas pipeline across the state and into Canada.

Analysts said corruption tainted that deal.

Palin renegotiated a new deal with a Canadian company, TransCanada, to build the $26 billion pipeline, which analysts say - if completed - is better financially for the state.

But analysts - and the McCain campaign itself - are quick to note that Palin will toe the line on the energy policies of her potential boss, who unlike Barack Obama does not favor a windfall profits tax.

Christopher Ruppel, an energy analyst at Execution LLC, a broker and research firm for institutional investors like hedge and mutual funds is more concerned with McCain’s energy policy than Palin’s past spats with the oil industry. "We don’t think she will represent a big change from that."

The McCain campaign, which speaks for Palin, confirmed that stance.

"’The governor supports the campaign’s positions," said Doug Holtz-Eakin, a McCain senior advisor.

Palin certainly has experience in dealing with energy issues in Alaska. But despite her drill baby comments, it’s hard to tell if the oil industry will see her as an ally - a la Dick Cheney who ran Haliburton, an oil services company - or whether her previous tax and pipeline decisions will label her a threat (instant payday loans).

‘It’s mixed, I haven’t picked up a consensus view," said Amy Myers Jaffe, a fellow in energy studies at the James A. Baker III Institute for Public Policy.

Exxon Mobil, which currently has an $800 million lawsuit filed against the state over the revoking of a gas field permit, declined to comment on Palin. Calls to Conoco and BP were not returned. The American Petroleum Institute also declined comment.

Jaffe said Palin shouldn’t get too much credit for raising the oil tax, noting that everyone from Hugo Chavez to the Canadian government hiked taxes as oil prices skyrocketed.

"Even the Bush administration raised royalty fees," she said. "She didn’t do anything everyone else didn’t do."

Other analysts echoed that sentiment.

"When people say ‘I stuck it to the oil companies,’ that is misleading," said Fadel Gheit, a senior energy analyst at Oppenheimer. "She is basically doing what is popular."

The tax may have been popular with Alaska’s voters, but it was not popular within Palin’s own party - many Republican state senators voted against the tax.

Holtz-Eakin, the McCain campaign spokesman, also said Palin’s decision to scrap the pipeline deal highlighted her ability to clean up Washington.

"She threw out the whole thing and redid it, which made sense," he said.

As to whether Palin can bring more experience in energy issues to the White House than her rival Joe Biden can, most analysts didn’t see it that way.

"Biden has extensive experience in dealing with energy and geopolitical issues due to his long record in the Senate," said Execution’s Ruppel. 

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OTTAWA–Canada is safe from recession, even if the U.S. Congress rejects a bailout package and global credit dries up further, but the economy may take enough of a beating to force the Bank of Canada to cut interest rates.

Credit is harder to come by for Canadian businesses, curtailing their investments. U.S. consumer purchases of made-in-Canada goods is wilting and commodity prices are slamming into reverse from record highs.

That toxic mix has sent economists back to their models to churn out lower growth forecasts for both 2008 and 2009, raising the likelihood that the central bank will have to consider easing borrowing conditions.

"If the U.S. government can’t put something through, that clearly increases the risk to Canada through the end of the year and into next year," said Ryan Brecht, economist at Action Economics.

The export sector, heavy reliant on the U.S. market, is getting clobbered and 70,000 factory jobs have been lost in the past year. But commodity prices are still higher than a year ago, padding household and corporate income.

"At this point we don’t really see negative growth for Canada, even in the worst-case scenario. We still look at them as being able to eke out a little bit of growth because they’ve been so resilient thus far," he said.

Last month after holding rates steady at 3 per cent, the Bank of Canada flagged a worsening U.S. outlook as one key risk that could prompt it to change its mind on rates. In a Sept. 25 speech Governor Mark Carney said this risk had become "more probable."

Markets on Thursday had priced in a 96 per cent probability of a rate cut on Oct. 21 due to the financial market meltdown, up from 51 per cent on Sept. 23.

Some economists are gradually coming around to that view as well.

"Even if the rescue package is passed, I’m still assuming that there is about a 60 percent chance the bank will cut in October," said Dale Orr, chief economist on Canada at Global Insight.

Prime Minister Stephen Harper and Finance Minister Jim Flaherty have used words like "resilience" and "island of stability" to describe Canada’s economy and banking system since the financial crisis escalated, triggered by the collapse of U.S online payday advance. investment banks and other financial pillars.

Both men are vying for votes in an Oct. 14 election on a platform of prudent economic stewardship. So Canadians could be forgiven for wondering if their word is too good to be true.

"We are not upbeat on the real economy. … We’ve had to pull our forecast down with each successive round (of the crisis). I think growth of under 1 percent this year is now the most likely outcome," said Glen Hodgson, senior vice-president and chief economist at the Conference Board of Canada.

Flaherty this week predicted economic growth of 1 per cent this year, almost double what some economists now expect. Dale Orr, for example, revised down his growth outlook to about 0.6 per cent this year and 1.4 per cent next year.

Still, politicians and economists alike agree that the Canadian banking system is sturdier than in the United States or Europe because of conservative regulations. "We are probably as insulated as anybody in the world, given what’s happening next door," Hodgson said.

As the U.S. House of Representatives prepares to vote on Friday on a proposed $700 billion rescue package for financial institutions and European leaders scramble to cobble together a plan of their own, such a move is still unfathomable in Canada.

"I would be astonished if we needed the kind of credit backup that the Treasury and Fed are putting together in the United States," said Hodgson.

But the liquidity problems in Canada have been serious enough to prod the central bank to offer to inject $10 billion into money markets by the end of October.

If all else fails to calm global markets, Carney is seen as fully committed to joining in any coordinated action by the world’s major central banks.

"You hate to think about it but to be realistic, if those politicians don’t get their act together and they disappoint everybody, something has got to move in very quickly to instill confidence and I would guess this is certainly one way of doing it," said Orr.

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European officials squabbled over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks.

French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a “rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't “see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday.

The conflict undermined efforts to build a consensus European strategy to counter the financial crisis as a recession looms. Other fissures emerged, as Ireland's decision to guarantee bank deposits and debts prompted criticism by British bankers yesterday that it “distorted competition.''

“I cannot see a common response,'' Jean Peyrelevade, former chief executive officer of French bank Credit Lyonnais SA, now owned by Credit Agricole SA, said in an interview. “For this crisis it's too late to build a common response.''

Fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, Iceland and the U.K. rescuing five lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors.

Euro Weakens

The euro tumbled against the dollar amid the infighting among European leaders. The Senate's vote in favor of the rescue plan for financial companies today also gave the dollar a boost. The euro fell to $1.3884 per euro at 13:05 p.m. in Frankfurt, near a one-year low, from $1.4009 yesterday in New York.

Dutch Prime Minister Jan Peter Balkenende will discuss his plan for European Union nations to create accounts to support their finance industry when he meets Sarkozy in Paris today, Dutch Finance Ministry spokeswoman Hendrieneke Bolhaar said.

“If all European countries reserve funds, it will add up to hundreds of billions of euros and that provides trust to Europeans,'' Dutch Finance Minister Wouter Bos told parliament today. “The funds will be strictly national, although we need to reach consensus over when to use them.''

In the U.S., Treasury Secretary Henry Paulson proposed a $700 billion bailout on Sept. 20 that lawmakers are struggling to pass. The House of Representatives rejected a version of the plan three days ago. Senators who approved the package urged opponents in the House to drop their objections.

`Non-Starter'

A European version of the Paulson plan is a “non-starter'' because of competing agendas and coordination difficulties, Klaus Baader, chief European economist at Merrill Lynch and Co. in London, said in a Sept. 29 report. Still, he expects increased cooperation among governments confronting the crisis.

The disagreements will be aired at an Oct. 4 meeting called by Sarkozy in Paris with Juncker, leaders of Great Britain, Italy and Germany, as well as European Central Bank President Jean-Claude Trichet.

Lagarde told the German newspaper Handelsblatt in an interview today that a “rescue package'' was needed to help “smaller'' European states “threatened with a banking failure.'' Germany opposes the proposal “based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann (no fax cash advance) http://paydayloans-on.com.

“We see no need for a fund,'' Olbermann said today.

Reuters reported that the fund would total 300 billion euros ($420 billion), citing an unnamed European government official.

Sarkozy Denial

Speaking to reporters today in Paris, Sarkozy said he “denied the amount and the principle'' of such a fund.

“Everyone is working very well together,'' Lagarde told reporters in Paris today.

The specifics of a coordinated plan notwithstanding, Germany rejects a Europe-wide approach to bank rescues, said Torsten Albig, another finance ministry spokesman.

“The idea of applying one solution, one big bang'' should the banking crisis spread “is not practicable and would create new, enormous problems,'' he told reporters yesterday in Berlin. “The tailor-made solution is the right way.''

That contrasts with pleas from European Union officials for less unilateral action. Charlie McCreevy, EU financial-services commissioner, yesterday proposed more coordinated oversight and rules that banks hold additional capital for asset-backed bonds.

“Capital and strong financial institutions are the lifeblood of an economy,'' McCreevy said in a Bloomberg Television interview in Brussels.

Money Markets

As banks hoarded cash, the Libor-OIS spread, a gauge of cash scarcity, widened for an eighth day. The difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate widened 7 basis points to 254 basis points as of 8:44 a.m. in London. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze spurred by the U.S. subprime- mortgage crisis began.

The credit-market turmoil may require a more comprehensive approach in Europe, the Organization for Economic Cooperation and Development said yesterday.

“Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic,'' OECD Secretary General Angel Gurria said in Paris. “The piecemeal approach may not work in Europe either.''

A group of economists including Alberto Alesina of Harvard University and Klaus Zimmerman of Berlin's DIW economic institute appealed for an EU initiative to recapitalize banks.

`Once-in-a-Lifetime'

“This is a once-in-a-lifetime crisis,'' the 10 academics said in an emailed statement. European leaders need to tackle the bank industry's crisis “head on before it spirals out of control.''

One proposal is for European countries to follow Ireland, either as a bloc or individually, in guaranteeing banks' deposits and debts. Spain's Finance Ministry today said it supports strengthening EU protections of deposits. Berlusconi and Sarkozy have already pledged to prevent losses for depositors.

The advantage of such a program would be that it would boost confidence among banks and give them time to resolve their problems, although it would also put taxpayer funds at greater risk, economists at Royal Bank of Scotland Group Plc. said in a report today.

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Bail out the financial industry, but don’t send me the bill.

That’s what a majority of Americans are saying, according to a CNN poll released Monday. The poll showed that people are concerned about the economy, and a majority favor government action to help bail out the struggling financial institutions. But people are concerned that the proposed industry-wide bailout will burden taxpayers.

Of the more than 1,000 Americans surveyed in a national CNN/Opinion Research Corp. poll, 62% said they think in general the government should step in to try to address the problems facing struggling financial institutions. The margin of error was plus or minus 3 percentage points.

But the poll, conducted Sept. 19-21, showed that Americans think the cost of the $700 billion plan being debated in Congress is too high.

Though 55% said they favor the proposed bailout, 65% said it would probably treat taxpayers unfairly.

The drop off in support for the government’s actions could stem from the fact that taxpayers may have to foot the bill for all these bailouts. The majority of CNNMoney.com readers voiced similar concerns in a Talkback blog over the weekend.

Still, 88% of 518 respondents said they are concerned or even scared by the tumult in the financial markets.

And 55% supported the government’s actions taken so far - such as the $85 billion loan to insurer American International Group (AIG, Fortune 500) and hundreds of billions in backing for mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and Wall Street brokerage Bear Stearns.

Economists say that the cost to the taxpayer is not yet known - and probably won’t be close to the headline number.

"For the average person, $700 billion sounds like a whole heck of a lot of money," said John Silvia, chief economist for Wachovia guaranteed payday loans. "It’s reasonable to look at that number and be scared about it, but in the end, the Treasury may actually make money from the deal."

That’s because the government is proposing to buy up troubled assets that banks don’t want, with the intention of selling them later when the market is better.

"There’s a chance they could sell them at a decent price," Silvia said.

Furthermore, the cost of doing nothing may be much more severe.

"Because of the hit that capital took, there wasn’t any lending going on, which created a lot of complications with people getting mortgages," said Silvia. "If these companies have to write down loans, they’re going to make even fewer loans in the future."

Since the markets are all circular and related, failing companies can negatively impact people’s ability to get a mortgage, finance a car or even save for retirement.

"A lot of people’s IRAs, 401(k)s and pension plans had Fannie and Freddie in it," Silvia added. "And anyone with an S&P 500 index fund has a huge weighting on the financial sector." 

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