Investors, scared by selloff, look to c.banks, data

The U.S. Federal Reserve is widely expected to cut rates sharply this week in the face of mounting turmoil that has hit the United States and the developed economies of Europe as well as emerging markets in Asia and Latin America.

Advance third-quarter U.S. economic growth data due on Thursday is expected to show a 0.5 percent contraction in gross domestic product after 2.8 percent growth in the previous quarter.

"Increasingly, the signs point to a deep and synchronized global recession," JPMorgan economist Bruce Kasman said.

"It is still too early to accurately gauge the depth of the downturn, as the outlook depends on how well policy actions contain the financial crisis."

The likelihood of the Fed slashing interest rates by 50 basis point stood at 74 percent on Sunday and at 26 percent for a cut of 75 basis points to 0.75 percent.

Asian and European leaders closed ranks over the weekend to bolster confidence among investors who fear that the worst financial crisis in 80 years has ushered in a deep and damaging world recession.

FEND OFF RISKS
"We must use every means to prevent the financial crisis impacting growth of the real economy," Chinese Prime Minister Wen Jiabao said at the end of a two-day summit of 43 Asian and European leaders in Beijing.

China's central bank governor Zhou Xiaochuan was on Sunday quoted as saying that Asia's second-largest economy is in good condition but needed to be on guard to fend off risks created by the turmoil.

Officials in Russia said its central bank has the means to control sharp fluctuations in its currency, but does not yet see the need to limit capital movements or change the rouble's trading corridor.

"Just because the global financial crisis has hit our shores, does not mean that the rouble has to be significantly devalued," the bank's first deputy chairman Alexei Ulyukaev said.

Governments have pledged about $4 trillion to support banks and restart money markets to try to stem the crisis and are considering tougher financial rules to guard against any repeat.

Foreign exchange analysts said extreme currency volatility, which has seen moves of a staggering 10 percent on some big rates on Friday alone, could see the Group of Seven or 20 top central banks intervening soon to stabilize world markets.

EARNINGS GLOOM
The U.S. dollar surged to two-year peaks versus a basket of currencies as dismal European economic data reinforced investor fears of a global recession. The yen soared to multi-year highs versus the dollar and euro on the ensuing risk aversion, while at its low on Friday the British pound suffered its biggest one-day percentage drop against the U.S. currency since September 1992.

Market participants will also be bracing for new signs of weakness in corporate earnings and gloomy statements on the future in what is going to be a heavy week of quarterly earnings reports.

Last week, Sony Corp shocked investors when it unveiled a drop in profit and slashed its earnings outlook, reflecting weaker demand for its cameras and television sets. Its shares fell 13 percent.

U.S. companies reporting earnings this week include United States Steel Corp., Procter & Gamble, Legg Mason, Kraft Foods, MetLife, and Sun Microsystems.

In Europe, reporting companies include Banco Santander, Alcatel-Lucent, France Telecom and Deutsche Bank.