China Cuts Rates Again, Others May Follow

China cut its interest rate for the third time in six weeks on Wednesday, and central banks in the United States, Japan and Europe are expected to follow by the end of next week to bolster economies facing recession.

Authorities fear the worst financial crisis in 80 years will usher in a long recession and are looking to rate reductions and other measures to soften the blow.

China increasingly appears to be the world's last center of growth and has said it would not fall victim to the crisis. It cut its interest rate to 6.66 percent from 6.93.

The Federal Reserve is widely expected to cut U.S. rates on Wednesday by at least half a point to 1 percent, the lowest level since June 2004.

Norway's central bank cut rates by 50 basis points to 4.75 percent, ending more than three years of tightening.

The global rate cut talk buoyed stock markets but analysts said any recovery would be short-lived given that a sharp economic downturn was already in progress.

Eugene Hoshiko / AP

"Enjoy the party while you can,'' said David Buik, market commentator at Cantor Index in London.

Japan's Nikkei index ended up 7.7 percent and European shares climbed 5 percent, with sentiment boosted by China's rate cut. U.S. shares were expected to climb modestly, following the second-biggest ever rise a day earlier.

The United States has entered a recession which will last longer and do more damage than any other since World War Two, the former head of the U.S. National Bureau of Economic Research, Martin Feldstein, was quoted as saying.

Japan May Cut

The Bank of Japan will consider cutting rates at a policy meeting on Friday but will watch market conditions before deciding, a source with knowledge of the matter told Reuters.

A cut by the world's second-biggest economy would "send a message to the world that Japan is cooperating with other nations in tackling the financial crisis,'' said Koichi Haji, chief economist at NLI Research Institute in Tokyo.

The European Central Bank and the Bank of England are expected to ease policy at their regular meetings next week.

The ECB is expected to cut a half point off rates to 3.25 percent, their lowest in two years, according to a Reuters poll.

An executive board member of the ECB said growth in the euro zone would be lower than expected.

(The ECB and the BoE are expected to cut rates but not the BoJ, says an economist. Watch the accompanying video for more...)

"Confidence will not return until we stop to think about the measures which have been taken and we can see financial institutions resuming their normal activity,'' Jose Manuel Gonzalez Paramo said in a newspaper interview.

Bail Outs

Governments have pledged about $4 trillion to support banks and restart money markets to try to stem the crisis set off by the bursting of a bubble in the U.S. housing market.

As credit lines have dried up, a growing number of governments have had to look for help from global lenders.

The IMF, European Union and World Bank agreed to a $25.1 billion economic rescue package for Hungary.

Ukraine, which has been offered $16.5 billion by the IMF, was told to pass legislation through its fragmented parliament or risk no loan, higher inflation and a default on its debts.

Central bank chairman Volodymyr Stelmakh said failure to secure the loan would lead to "double-digit inflation ... as well as moral discredit and declaring default.''

Ukraine's hryvnia currency sank to historic low of 7.05-7.20 to the dollar.

In neighboring Belarus, run largely along command-economy lines, the deputy central bank head said the country was optimistic about agreeing a $2 billion IMF loan, and was ready to liberalize its economic policies.

Pakistan's central bank governor said it was in no danger of defaulting on its debt but was considering whether to expand on technical help with the Fund.

South Korea denied speculation it was seeking IMF support but said it would ease won liquidity requirements on banks to help bring down their funding costs.

The Fund has agreed a $2.1 billion loan to Iceland, where the financial system has all but collapsed.

IMF officials have said that the fund may need additional resources in a prolonged crisis and European Commission President Jose Manuel Barroso said on Wednesday China and the Gulf countries could do more to help the Fund support countries hit by the financial crisis.

The European Union's executive also said the bloc's crisis funding facility of 12 billion euros ($15.3 billion) might not be enough and should be increased.

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