Oil and gold prices dipped on Tuesday, pressured by the gloomy global economic outlook which outweighed tensions in the Middle East due to Israel's assault on the Gaza Strip.
Tuesday brought more dismal economic news in the United States, with single-family home prices down 18 per cent in October from a year earlier and consumer confidence plunging to a record low due to severe job cuts.
US retailers are also suffering. The International Council of Shopping Centers said the US holiday shopping season was the worst since at least 1970 due to the recession, heavy discounting and harsh winter weather.
"Really at this point we are not going to be seeing anything fundamentally positive from the US for the time being," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.
But US stock indexes ended more than two per cent higher, cheered by news that the government expanded its bailout of the auto industry, pumping $5 billion into General Motors' auto and mortgage financing arm GMAC.
GMAC and its parent GM, the biggest US automaker, announced programs to make it easier for car and truck buyers to get financing, a day after the US government funding was announced.
The US government agreed on December 19 to rescue GM and Chrysler LLC with up to $17.4 billion in loans to help stave off a collapse that would have cost hundreds of thousands of jobs in an economy already deep in recession.
The pressure on companies was highlighted by data from Reuters Loan Pricing Corp showing US loan issuance in 2008 tumbled 55 per cent to the lowest since 1994.
2009 GROWTH SEEN WEAK
New data on Tuesday also showed lending to euro zone companies and households stagnated in November to the weakest result on record, bolstering expectations the European Central Bank will keep cutting rates to ward off a deeper recession.
"Problems in financial markets are affecting the real economy across the world and global growth is expected to be very weak in 2009," ECB Governing Council member John Hurley said in the Irish Times.
He did not give a global figure but the ECB has already cut its forecast for the euro zone, predicting a 1.0 per cent fall in gross domestic product next year.
Retail spending in the euro zone fell for the seventh straight month in December, French unemployment jumped sharply, and the head of the German exporters' association, BGA, forecast exports will fall next year for the first time since 1993.
European stocks were on track for a 46 per cent loss in the full year when trading ends on Wednesday, while on Wall Street, the benchmark S&P 500 is down about 40 per cent, making 2008 one of its worst years ever.
The euro continued its recent surge against the British pound and the dollar. The contrast of aggressive monetary easing in the United States with a more cautious ECB is lending support to the euro while hurting the greenback, analysts said.
REAL ECONOMY HIT
Analysts forecast more pain for consumers and investors in 2009, but said hopes of more government rescue packages were helping to shore up financial markets for now.
Daily newspaper Sankei Shimbun said Japan's government and central bank hope to launch a $110 billion scheme by the end of March to buy bad loans and other financial assets from banks.
Japan's gross domestic product has likely shrunk in the fourth quarter by an annualized 12.1 per cent, which would be its sharpest contraction in 34 years, Barclays Capital said.
"Everyone's pinning their hopes on economic stimulus policies by the United States and possibly China," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
Tokyo stocks ended higher on their last trading day of 2008, capping a grim year which saw the Nikkei index plunge 42 per cent, the biggest loss in its 58-year history.
"2008 was the year of the serpent, everyone got bitten," said Paul Biddle, a fund manager with Souls Funds Management in Australia.
China announced a 4 trillion yuan ($586 billion) stimulus package last month to tackle a sharp slowdown that many economists forecast could cut growth next year to less than 7.5 per cent, the country's lowest since 1990.
In a sign of shrinking economic activity across borders, international airlines saw a huge 13.5 per cent fall in cargo traffic in November and a drop of 4.6 per cent in passengers, industry group IATA said.