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Obama mulls delays to tax hikes

US President-elect Barack Obama is consider delaying a campaign promise to roll back tax cuts on high-income Americans and Washington is mulling further support for Citigroup Inc in the latest efforts to contain the worst global economic crisis in 80 years.

Citigroup is looking at putting risky assets into a government-supported “bad bank” in an effort to reassure investors after a 60% fall in its share price last week, according to a person briefed on the matter.

Broadcaster CNBC reported the government's priority was to give Citigroup a $10 billion to $20 billion equity infusion, but that would not necessarily preclude other actions to bolster the bank.

Asian stocks fell about 1% on Monday on expectations other banks will need more cash and in the absence of any definitive news on a support plan for Citigroup, the second-largest US bank by assets and one of the best-known American financial institutions.

Asian-focused UK bank Standard Chartered is finalizing a $3 billion rights issue to boost its capital reserves, a source familiar with the plan said.

Policymakers were readying further measures to stabilize the ailing global economy as problems in the banking sector hamper companies' access to funds and weigh on consumer and investor confidence.

Obama, who on Saturday outlined a huge stimulus plan, was considering allowing tax cuts brought in under the current administration of President George W. Bush to run their course until the end of 2010, rather than being rescinded by legislation before then, two Obama aides indicated.

Britain is also expected to announce later on Monday plans to temporarily cut taxes and increase public spending in an effort to grease the wheels of the economy.

In South Korea, the central bank said it would put up to $3.4 billion into a proposed $7 billion fund to buy bonds from cash-strapped companies and commercial banks.

And members of the 21 nation Asia-Pacific Economic Cooperation (APEC) forum pledged to take quick and decisive action to help the global economy.

But a deputy governor at China's central bank said interest rates were at a “relatively appropriate” level, hosing down speculation for more immediate monetary stimulus which had been swirling late last week.

Signs that Obama would consider holding off tax hikes for the rich, a key policy plank in his election campaign, marked a significant shift.

 

Business leaders and economists had expressed concern that raising taxes on the higher paid now would only exacerbate the economy's woes.

When asked if the tax cuts for the wealthy would be allowed to expire on schedule after 2010 rather than be rolled back earlier, senior Obama adviser David Axelrod told Fox news channel: “Those considerations will be made.”

Another adviser, Bill Daley, said on NBC's “Meet the Press” that the 2010 scenario “looks more likely than not.”

Obama plans to nominate Timothy Geithner, president of the New York Federal Reserve Bank, as Treasury secretary, a transition official said. Lawrence Summers, 53, who was Treasury secretary in the Clinton administration, will help shape policy as director of the White House National Economic Council, the official said.

The potential size of the latest US stimulus plan appears to be growing from the $100 billion to $300 billion previously suggested by congressional leaders.

One influential Democrat, Sen. Charles Schumer of New York, said on Sunday that a package of up to $700 billion was needed to support the American economy.

Members of APEC, which include the United States, China and Japan and account for more than half the world's output, said they would work together to ease the financial turmoil.

They agreed not to adopt new trade barriers for a year and called for better regulation of the financial industry, while supporting overhauls of the International Monetary Fund and World Bank at a time when more countries need emergency bailouts to avert economic disaster.

“The global political and economic architecture is undergoing the deepest and most complicated changes since the Cold War,” Chinese President Hu Jintao told Russia's Dmitry Medvedev in Peru's capital at the end of a two-day summit.

In Britain, Prime Minister Gordon Brown and his finance minister, Alistair Darling, are expected to announce a package totaling up to Ł20 billion ($30 billion), by cutting sales tax and offering help for businesses, low earners and struggling home owners.

They will also announce plans to plug the hole in state finances by raising taxes in future, including a political shift in the form of a sharp rise in income tax for high earners, media reports say.

The National Institute of Social and Economic Research forecast early on Monday that the British economy will shrink by 1.5% next year, and for a total six quarters in a row, with a recovery not starting until early 2010.

“I don't see this as a gamble. I see this as necessary, responsible action,” Brown told the BBC.

Britain has already poured billions of pounds into supporting banks crippled by their exposure to bad mortgages and derivative products related to them.

Financial firms around the world are still having to find additional capital to shore up their shaky balance sheets.

In addition to Standard Chartered, UBS and Nomura Holdings were also seeking or likely to need more funds, according to media reports over the weekend.

Swiss bank UBS is likely to need another injection of funds from the state after the company's shares fell almost 50% this month, a top Swiss bank regulator told SonntagsZeitung newspaper on Sunday.

And Nomura Holdings Inc, Japan's largest broker, plans to raise several billion dollars to replenish a capital base depleted by the financial crisis and its acquisition of parts of failed Lehman Brothers, according to a report from Japanese broadcaster NHK.

Nomura said nothing had been decided in the matter. (Reuters)