Big job losses keep investors on edge despite rate cuts

A wave of job losses and prospects for more bleak US employment data kept investors on edge Friday despite sweeping interest rate cuts in Europe and as fears mounted for the fate of the US auto sector.

Stock markets were bracing for more bad news from Washington later in the day when job creation and unemployment figures for November were expected to show that the financial crisis had bitten deeper into the broad economy.

A new round of job cuts by big US and European companies and news that US government unemployment aid had hit a 26-year high also dampened sentiment, undercutting the impact of historic interest rate cuts in Britain and the eurozone.

Stock markets are showing little enthusiasm for the rate cuts which would normally be expected to boost sentiment because they reduce the cost of capital for companies and of credit for consumers.

Adding to market jitters was uncertainty surrounding the fate of the loss-making Big Three US auto giants, whose chief executives are trying to convince Congress to throw them a 34-billion-dollar lifeline.

European markets fell hard in early trading after a mixed performance in Asia, where investors turned cautious ahead of the US jobs report.

Analysts are predicting the data will reveal that the world's largest economy shed 325,000 non-farm jobs last month after a loss of 240,000 in October.

In an ominous foretaste of the Friday report, the Labor Department said Thursday that unemployment insurance claims had surged to a 26-year high.

"Overall, the claims data are pointing to the hardest landing, at least so far as employment is concerned, since the early 1980s," said TJ Marta, analyst at RBC Capital Markets.

"This data report suggests that we are entering the period of the worst data we are likely to see for the downturn."

Earlier in the week the ADP National Employment Report showed a loss of 250,000 positions in the US private sector in November, the sharpest decline in six years.

Telecommunications giant AT&T said Thursday it was cutting 12,000 jobs, or about four percent of its workforce, beginning this month and through the end of 2009.

The chemical group DuPont said it would eliminate about 2,500 posts while media-entertainment group Viacom is to cut its workforce by seven percent, or 850 jobs.

The Big Three US auto makers, General Motors, Ford and Chrysler, who are huge employers, pleaded for 34 billion dollars in taxpayer bailouts from Congress, warning that their collapse could cost up to three million jobs.

But there was no clear hint of sufficient support in Congress to approve such a rescue.

"There's a high, high possibility of a bankruptcy by one of the (Big Three) automakers which still could take place even if they get some funding from the federal government in this round of discussions," said Gregg Stein of Standard & Poor's ratings agency.

The heads of three manufacturers were to return to Congress Friday, appearing before the House Financial Services committee.

There were also fresh indications that the Asian auto sector was ailing.

The cash-strapped Japanese group Honda announced its shock withdrawal from Formula One, ending an involvement that began in the 1960s and raising further fears over the sport's future.

"This difficult decision has been made in light of the quickly deteriorating operating environment facing the global auto industry, brought on by the subprime problem in the United States," said Honda president Takeo Fukui.

South Korea said it was considering tax cuts for automakers who are grappling with declining domestic and overseas demand.

In such an environment, unprecedented anti-recession action on Thursday by leading European central banks had but little effect on investor spirits.

The European Central Bank cut the benchmark cost of borrowing by a record 0.75 percentage points to 2.50 percent shortly after the Bank of England returned British interest rates to levels last seen in 1951 with a full point reduction to 2.0 percent.

Central banks in Sweden and Denmark likewise eased their monetary policies and analysts said expectations were building for a 75-basis-point rate cut next week by the US Federal Reserve.

But on Wall Street Thursday the Dow Jones Industrial Average fell 2.5 percent as investors stampeded toward the safety of US Treasury bonds.

The burgeoning global meltdown was also on the minds of finance leaders from China and the United States, who agreed at talks in Beijing to provide 20 billion dollars in trade financing to boost commerce.

Leading European markers were well into negative territory by mid-morning, with the London FTSE down 1.25 percent, the CAC in Paris 2.35 percent and the Frankfurt Dax 2.59 percent.

Earlier in Asia Hong Kong had gained 2.5 percent at the close, Shanghai 0.86 percent and Seoul 2.1 percent.

There were losses of 0.08 percent in Tokyo, 0.1 percent in Manila and 1.2 percent in Sydney.