TOPWRAP 1-U.S. elects Obama as world gripped by economic crisis

By Kevin Plumberg HONG KONG, Nov 5 (Reuters) - Barack Obama's convincing win in the U.S. presidential election ends a source of uncertainty for global investors but does not change the grim realities facing the world economy. Asian shares hit a three-week high and the dollar extended its gains after Obama captured the White House over Republican rival John McCain at a time when the world's biggest economy is likely in a recession. That followed the biggest Election Day rally ever in U.S. stocks, but many investors said Obama's victory didn't change their outlook for markets or for central banks to keep cutting interest rates around the world to support struggling economies. Doug Kass, founder and president of hedge fund Seabreeze Partners Management, said the Wall Street rally was an "Obama bounce, not an Obama rally." "It's growing clear that the recession is going to have a shelf life unlike the last recessions in both scope and duration." In the latest evidence of the toll the financial storm is taking on the world economy, Australia's government on Wednesday slashed its forecasts for economic growth and its budget surpluses. "If international conditions were to deteriorate further then there could be more to come," the country's Treasurer Wayne Swan said. "This is yet another dramatic reminder that we are not immune to the impact of the global financial crisis." Obama's landslide win, along with the Democrats' tighter grip on the Senate and House of Republicans, was expected to accelerate the passage of billions of dollars of more spending aimed at shoring up the U.S. economy. It could also reinforce a shift away from the hands-off regulatory approach many analysts have said caused the excesses that resulted in the credit crisis. That would fit with European Union policy after the bloc's finance ministers on Tuesday proposed an end to market self-regulation. The proposal will become the EU's position for a summit of G20 leaders on Nov. 15 in Washington. Investors have tracked the U.S. election closely because of the winner's influence to shape rescue plans underway to cope with the worst financial calamity since the Great Depression. Asian stocks rose for a seventh consecutive day to the highest in three weeks and U.S. Treasury debt fell after Obama's victory was declared. "Well, it can't be negative for markets. It's a vote for change and has to inject a degree of optimism that America can again reinvent itself," said Rob Henderson, head of market economics with National Australia Bank in Sydney. RECESSIONS LOOMING Obama will lead the U.S. administration in its fight against the financial storm unleashed by the collapse of Lehman Brothers in September, though there was tentative evidence the worst of the credit crunch was over. Benchmark rates for lending between banks dropped to their lowest level in five months on Tuesday, but overnight deposits at the European Central Bank hit a record high, showing some banks are still hoarding their cash. Money market rates across most of Asia continued the softening trend on Wednesday as central bank cash infusions and expectations of more interest rate cuts supported liquidity. Policy makers are now turning their focus from shoring up the world's financial system to trying to support economic growth. Britain, the euro zone, Japan and the United States are viewed by economists as being in a recession. Data on Friday is expected to show that the U.S. labour market lost 200,000 jobs in October, a month when stock markets globally chalked up record declines. Some economists expect China's five-year string of double-digit growth in gross domestic product to come to an end this year on the back of a troubled factory segment, a depressed property market and collapsed investor sentiment. Australia's economic forecasts added to market convictions that the Reserve Bank of Australia will have to keep cutting its benchmark interest rate to bolster the economy after cutting it by 2 percentage points in two months, the most aggressive set of cuts since 1990/91. The Bank of England and the European Central Bank were both predicted to cut interest rates by a half percentage point on Thursday to bolster their economies. Obama advocates a second economic stimulus package to revive the U.S. economy. Valued at $175 billion, the plan would include funding for infrastructure and a round of tax rebates. Any package like that would add to the $4 trillion that governments around the world have thrown at the financial crisis in the form of tax cuts, bank bailouts and other spending. LINKS > For U.S. election coverage....................... (Additional reporting by Reuters bureaus worldwide); Keywords: FINANCIAL/ (Reuters Messaging:[e-mail] Email: [e-mail]; [phone]) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.