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German economy in recession

FRANKFURT, November 13 – Germany, Europe\’s biggest economy, entered recession Thursday amid more heavy falls on stock markets after the US scrapped plans to buy up toxic mortgage assets at the heart of the financial crisis.

A day after the Bank of England said Britain was probably already in recession, official figures showed Germany\’s economy shrank 0.5 percent in the third quarter after a contraction of 0.4 percent in the second quarter.

A leading member of Japan\’s central bank meanwhile said Asia\’s largest economy also faced a long slump, as reports said Tokyo was ready to lend 100 billion dollars to help emerging nations battered by the economic maelstrom.

After heavy falls on Wall Street and Asia, Europe\’s leading stock markets were all down on opening with London\’s FTSE 100 index dropping 1.06 percent while there was a 1.17 percent drop in Paris.

Frankfurt stocks fell a relatively mild 0.46 percent after the announcement that Germany had recorded its second consecutive quarter of negative growth, the generally accepted definition of recession.

Germany, the world\’s leading exporter, has been hit by weakening activity in its major markets while domestic consumption has remained at low levels. The government recently cut its forecast for growth next year to 0.2 percent.

Highlighting the sense of gloom, German industrial giant Siemens warned that "challenging" global economic conditions meant its 2009 profit target was now "clearly ambitious."

Asia\’s main markets were all sharply down at close following the mortgage announcement by US Treasury Secretary Henry Paulson.

Stocks tumbled 5.25 percent in Tokyo, Sydney ended down 5.9 percent at a four-year low while Hong Hong lost 5.15 percent.

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"It looks like world markets will take another leg down in the next few days," Patrick Crabb, senior sales trader for Goldman Sachs JB Were in Melbourne, told Dow Jones Newswires.

"We passed through the eye of the hurricane and are now back feeling the full force of the storm."

Dropping the centrepiece of a 700-billion-dollar bailout plan, Paulson said the money would be better spent on cash injections for struggling banks and help to shore up consumer credit markets rather than on buying up mortgages.

Paulson, a Wall Street veteran struggling to put the brakes on the worst financial meltdown in decades, said the crisis had deepened since the controversial rescue plan was approved by the US Congress in early October.

"The facts changed and the situation worsened," he said.

The plan to purchase the bad assets that triggered the current crisis was at the heart of the bailout, and the response from Wall Street was a 4.7 percent fall on the the Dow Jones Industrial Average.

The crisis is rooted in the so-called subprime loans in the United States — mortgages to buy houses and other forms of credit extended to underqualified consumers with less than solid credit histories.

The loans were often repackaged and sold to banks and investors around the world. As the economy slowed and house prices declined, defaults on those loans mounted, sending shock waves through the global financial system.

No country has emerged unscathed, with Chinese Premier Wen Jiabao saying on Thursday that the impact was "much worse than many had expected."

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A member of the Bank of Japan\’s policy board, Seiji Nakamura, meanwhile said the financial crisis is curbing economic growth, "putting the Japanese economy on the brink of a long-term adjustment phase."

But despite the gloomy outlook for Japan, Tokyo\’s Nikkei business daily said Prime Minister Taro Aso would announce plans to lend 100 billion dollars to emerging nations at a summit on the crisis this weekend in Washington.

There was also grim news on the jobs front as British telecoms operator BT Group announced it would cut 10,000 jobs by March 2009 despite seeing its second-quarter net profit jumping 18 percent.

The company said that while some areas of its business had performed better than expected, its international services were not good enough and it was taking action to remedy the problems.

Accordingly, it would cut 10,000 jobs by the end of March — 4,000 from among its own staff and 6,000 from among its sub-contractors and consultants. BT has a workforce of 160,000.

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