Banks Cede Control To Govts; India, Japan Falter

Crippled banks in Europe and the United States sank deeper into state control on Friday as governments fed them more cash to stabilise lending and kickstart faltering economies worldwide.

The U.S. government was set to unveil a deal later on Friday that will boost its stake in Citigroup through conversion of $25 billion in preferred shares, according to a person familiar with the matter.

And global development banks launched a two-year plan to lend up to 25 billion euros ($32 billion) to shore up banks and businesses in crisis-hit eastern and central Europe.

The Citi initiative could leave U.S. taxpayers with as much as 40 percent of a bank that once dominated the country's financial services industry.

It will come a day after Britain agreed to insure 500 billion pounds ($715 billion) of risky bank assets and struck a deal that could raise the government holding in Royal Bank of Scotland to 95 percent..

On Friday, a second major British institution, Lloyds Banking Group, prepared to tap the insurance scheme.

Together with the $1.75 trillion budget deficit forecast by U.S. President Barack Obama, the deals highlight the lengths to which governments are prepared to go to rescue the financial industry and the broader economy.

"This is likely to be positive for the market," Hideyuki Ishiguro at Okasan Securities in Tokyo said.

"While there were worries about nationalisation, that's mostly on the part of the shareholders. For ordinary Americans, it's important to make the financial system more stable."

Fannie Mae, the government-controlled company seen by the U.S. administration as a key conduit to stabilise the housing market, reported a $25.2 billion fourth-quarter loss, forcing it to ask for $15.2 billion from the U.S. Treasury.

STOCKS WEAK, ECONOMIES STAGGER

World stock markets slipped towards six-year lows they registered earlier in the week and the dollar hit a three-month high against major currencies as concerns intensified about profits at pharmaceutical companies and banks.

Data showed economies faltering from Japan to Sweden.

Japanese factory output fell a record 10 percent in January, dragging down the number of new jobs on offer and showing Japan's recession deepening.

India's economy slowed more than expected from October to December, with annual growth falling to 5.3 percent from 7.6 percent in the previous quarter.

Fourth quarter data from the Nordic region showed the Danish and Swedish economies contracting at record paces and Finland entering recession.

In the euro zone, unemployment crept up and inflation fell to its lowest in almost 10 years.

And the South Korean won fell to an 11-year low against the dollar as analysts said risk aversion fuelled by the fragility of global financial system would impede any recovery.

China gave a mixed picture on its economy's outlook for the coming year, with one official saying he was confident the government could engineer 8 percent growth, but another saying growth would not pick up until at least the second quarter.

"I don't think China's economy will bottom out in the first quarter. That means China's economy will be further weighed down by the worsening external environment," Vice Commerce Minister Fu Ziying told a forum.

Gloom piled up in the United States as well in data released on Thursday. The number of U.S. workers filing for jobless benefits jumped to a record high of 5.1 million in mid-February, while U.S. durable goods orders hit a six-year low in January.

Carmaker General Motors posted a 2008 loss of nearly $31 billion and said auditors were likely to cast doubt on its viability.