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China says can spend more; US banks cheer markets

China said it was ready to pump more money into its economy and saw a pick-up in trade, offering another glimmer of hope for the battered global economy as signs that big US banks may be turning around lifted world stocks.

Japan pledged to outline a new stimulus package in time for a Group of 20 summit at the beginning of April and said it would inject public money into three struggling banks, as Tokyo steps up efforts to support its economy.

Asian share indexes jumped, buoyed by a smaller than expected decline in US retail sales and optimism humbled financial giants such as Citigroup and Bank of America will survive without a government takeover.

Financial bookmakers expected big European stockmarkets to open 1%-2% higher.

Around the world central banks have slashed interest rates and governments have launched stimulus packages to fight what the IMF has called a “Great Recession” of a severity not seen since the 1930s.

China, the engine of world growth in recent years, has rolled out a 4 trillion yuan ($585 billion) plan to expand and speed up government spending, and Premier Wen Jiabao said it was ready to do more.

“We have prepared contingency plans to handle greater difficulties,” he told a news conference to mark the end of the annual session of China's parliament. “We have prepared enough ammunition and we can launch new economic stimulus policies at any time.”

Wen also called on Washington to protect Chinese assets in the United States. “We have lent massive capital to the United States, and of course we are concerned about the security of our assets.”

China is the biggest foreign buyer of US government debt, holding some $727 billion worth of Treasury securities, and is also owner of substantial debt in state-controlled housing finance agencies Fannie Mae and Freddie Mac.

Switzerland's central bank stunned investors on Thursday by intervening in the foreign exchange market to weaken its currency, the first big central bank to take such action to stave off deflation.

The move raised investor worries that other economies, notably Japan which has a history of intervention, might follow suit, fuelling protectionism. But Tokyo traders said that was unlikely.

“Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great,” said Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co.

“The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy.”

Finance ministers from the G20 were meeting in southern England on Friday to prepare for a leaders summit of the group of rich nations and emerging powers in London on April 2.

A split has emerged, however, between the United States and allies such as Britain and big continental European nations over how best to tackle the crisis.

The United States called on Thursday for urgent steps to revive the world economy but got a cool reception in Europe, where German chancellor Angela Merkel said the key thing was to implement previously agreed steps.

Japanese Finance Minister Kaoru Yosano supported the call for more fiscal stimulus.

“We strongly support the thinking that each country's efforts to fix their own economies will, in turn, help the global economy and lead to a stable financial system,” Yosano told a news conference before leaving for the G20 meeting.

Yosano added the government, which launched a bank recapitalization scheme in December, would have the outline of a new economic package ready by the G20 summit.

Japan's financial regulator said it would inject $1.2 billion into three local banks, Sapporo Hokuyo Holdings, Minami-Nippon Bank and Fukuho Bank.

Regional banks have been hit hard as plunging exports and sliding property prices have squeezed their customers, leading to rising bankruptcies among small and medium-sized firms.

Demand for the cars, electronics and other consumers goods has slumped in the developed world as the recession grips, hammering the export-driven economies of Asia.

Top South Korean technology companies Samsung Electronics and LG Display said on Friday they were braced for a very difficult year.

“Developed countries may post negative growth this year,” Samsung vice chairman and chief executive Lee Yoon-woo told the company's annual meeting. “Demand is expected to decline in some core businesses that had been leading our company's growth.”

Data from China earlier in the week showed exports plunged in February, but Commerce Minister Chen Deming said trade volumes had been much stronger in the first 10 days of March and forecast the trend would continue throughout the month.

Shares were boosted by the slightly more optimistic tone from Asia and the United States, with Tokyo's Nikkei rising more than 5%. US stocks had jumped around 4% on Thursday.

Citigroup told Reuters it did not need more emergency cash from the government and expects to stay private, while Bank of America said it had been profitable in January and February.

It was a welcome sign of stability from two firms at the heart of the financial crisis. Massive losses at big banks tied to risky home loans triggered a dramatic seizure in credit markets that set off the worldwide recession.

“The economic situation seems to be better than what people were saying at the beginning of the year - a view that has come about now that it seems that US banks' earnings may not be atrocious,” said Masaru Hamasaki, senior strategist at Toyota Asset Management in Tokyo. (Reuters)