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Japan vows action; US, Europe split ahead of G20

Japan pledged to do whatever it takes to drag its ailing economy out of recession as a rift emerged between the United States and Europe over whether governments have done enough to fight the financial crisis.

Finance ministers from the G20 group of rich nations and big emerging powers meet at the weekend to prepare for a summit in London on April 2, where leaders hope to present a united front in tackling the worst economic crisis in decades.

“We'd like to act based on an agreement of countries across the globe that each nation will take whatever steps necessary to achieve an economic recovery,” said Japanese Finance Minister Kaoru Yosano.

“We will adopt whatever measures are available,” he said after a cabinet meeting.

In response to the global downturn, which grew out of a US housing market slump and spread through the rich world to emerging economies, central banks and governments have slashed interest rates and unveiled stimulus packages.

Yosano's comments appeared to put Japan in step with the United States, which seemed to suggest other major nations should step up their efforts to battle the crisis.

“We're doing more in weeks than other countries do in years,” US Treasury Secretary Timothy Geithner told Reuters after briefing US lawmakers on the administration's economic stimulus and financial stability programs.

On Monday Lawrence Summers, US President Barack Obama's chief economic adviser, had urged governments to pump more money into their economies to counter recession. But that call was rejected when euro zone finance minister met the same day in Brussels.

“The 16 finance ministers agreed that recent American appeals insisting Europeans make an added budgetary effort were not to our liking, given that we are not prepared to go further in the recovery packages we have put forward,” said Jean-Claude Juncker, who chaired the meeting. “We take the view that we don't need to make a further effort at the moment.”

But the economic picture grows ever bleaker. Unemployment has been rising around the world and, as consumers in the heavily indebted West rein in spending, demand for goods from the export-dependent economies of Asia has collapsed.

In China, the engine of world growth in recent years, consumer prices in February fell for the first time in more than six years, potentially giving its central bank further room to cut interest rates or use other policy tools to boost growth.

Commerce Minister Chen Deming and Industry Minister Li Yizhong, speaking at a joint news conference, both used the word “grim” to describe the immediate outlook for Chinese exports and manufacturing.

Li said he was encouraged that power consumption had declined at a slower pace in the first two months of the year. But he added, “The situation of industrial production remained grim.”

In Australia, one of the few rich countries not yet officially in recession, job advertisements plunged by a record in February, while firms reported the toughest trading conditions since the recession of the early 1990s.

The gloomy global picture pushed Japan's Nikkei average down 0.4% to its second successive 26-year closing low. Finance Minister Yosano said Tokyo would act decisively to prevent falls in share prices worsening the credit crunch.

Analysts say Japanese banks, while not as badly mauled by the global financial crisis as Western peers, could hoard cash and be forced into a fresh round of capital raising soon as sliding stock prices swell their losses.

Yosano, who also holds the economy portfolio, said after a cabinet meeting that the government would consider steps such as issuing deficit-covering bonds to fund additional fiscal stimulus.

Japanese government bonds 2JGBv1 fell on worries about an increase in government debt issuance.

China's consumer prices fell 1.6% in the year to February, but both the government and several private economists played down the risk of a protracted period of falling prices. “Deflation, though a real concern, is expected to be a temporary phenomenon,” said Jing Ulrich, chairman of China equities at J.P. Morgan in Hong Kong.

“That being said, we believe that the government may take additional steps to avoid an extended period of deflation.”

Asian share markets outside Japan rebounded from a three-session losing streak, although the gains were seen by many as a temporary reprieve.

“It is hard to think that stocks will turn to an upward trend given the credit situation,” said Kazuyuki Kato, treasury department manager at Mizuho Trust and Banking Co in Japan.

Confidence in policymakers' efforts to revive global economic growth will be key to a sustained rebound in global equities, with key indexes such as the US the Dow Jones industrial average trading near 12-year lows.

US stocks fell on Monday after billionaire investor Warren Buffett said the economy had “fallen off a cliff.” A $41 billion deal for drug maker Merck & Co Inc to buy Schering-Plough Corp failed to spark a rally. (Reuters)