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European stocks shaky despite Asia gains

Wall Street shares fell Tuesday as a series of bleak earnings forecasts from US companies reeling from recession prompted investors to lock in gains after two days of strong rallies, traders said.

Following the New York close, the White House indicated an agreement in principle was in place with Congressional leaders on a 15-billion-dollar auto industry rescue package but stressed negotiations were not yet over.

‘There is a possibility that Congress will vote as early as today (Wednesday) on the 15 billion dollar plan to keep automakers afloat while forcing them to restructure,’ said Barclays Capital analyst David Woo.

‘This is likely to remain the dominant issue for US equity markets over the next few days.’ Wall Street was to reopen at 1430 GMT on Wednesday.

Meanwhile in Europe, London's stock market was down 0.85 percent nearing midday. Frankfurt lost 0.33 percent, Paris dropped 0.54 percent and Rome shed 0.37 percent.

Italy's economy shrank 0.5 percent in the third quarter, putting the country in recession, official data showed Wednesday, confirming figures released in mid-November.

Gross domestic product in the eurozone's third largest economy after Germany and France contracted 0.4 percent in the second quarter, with recession counted as two successive quarters of falling output.

In Asia, Tokyo closed up 3.15 percent on Wednesday, Hong Kong soared 5.6 percent, Seoul jumped 3.6 percent, Taiwan added 4.16 percent and Sydney put on 1.0 percent.

Anglo-Australian mining giant Rio Tinto on Wednesday said it would slash thousands of jobs globally to cut its debt by 10 billion dollars as it battles falling commodity prices and a worldwide economic slowdown.

Investors meanwhile reacted coolly to Sony Corp's plans to slash about 16,000 jobs and shut plants to cope with the financial crisis, as analysts warned the revamp may not be radical enough. Sony shares ended up 1.1 percent.

In the United States, White House spokeswoman Dana Perino said US authorities would continue to work towards finalising legislation aimed at helping to rescue the American car industry.

‘A great deal of progress has been made,’ she said of the legislation to shore up the ailing Big Three -- Chrysler, Ford and General Motors.

‘Market sentiment improved following reports that Congressional Democrats had reached an agreement with the White House over the outlines of the plan,’ said Lee Hardman, an economist at The Bank of Tokyo-Mitsubishi UFJ in London.

Investors however remained on edge as the World Bank offered a grim forecast for global growth next year and new data from Japan confirmed that the world's second-largest economy was rapidly worsening.

The World Bank forecast slowing growth of just 0.9 percent for the global economy and said global trade volume would fall 2.1 percent as the financial crisis takes its toll on rich and poor nations alike.

‘The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated,’ the World Bank said.