US swallows more bad news, as EU unveils stimulus package

The United States faced more gloomy economic news as European leaders called for a fresh stimulus package in the latest bid to stem the global financial crisis.

A report on the eve of the national Thanksgiving holiday showed US consumer spending dropped 1.0 percent in October, the steepest fall since September 2001.

It foreshadowed a dismal start to the fourth quarter for the world's largest US economy, which is reliant on consumer spending for around two-thirds of economic activity.

A day after the US Federal reserve said it would pump 800 billion dollars more into financial markets, the European Union in its turn unveiled a 200-billion-euro (259 billion dollar) stimulus package.

"Coordinated European action can and will make a difference," commission chief Jose Manuel Barroso stressed as he put forward the wide-ranging EU package. "Business as usual is not an option."

But some economists were skeptical, with Marco Annunziata at Italian bank Unicredit describing it as "more of a publicity stunt than anything else."

"The commission's plan is long on lofty rhetoric and short on concrete details, as has too often been the case," he said.

Dismal news from the United States took the cheer out of the official start to the holiday season, usually the busiest time of year for retailers.

Ian Shepherdson, economist at High Frequency Economics, called the consumer spending report "horrible" and said much of the drop was linked to weak auto sales.

But because of falling prices -- an inflation index linked to the report showed a 0.6 percent decline -- Shepherdson said "the fall in real spending was 0.6 percent after rounding, not quite as massive as the nominal plunge."

Other US reports made equally depressing reading.

The Commerce Department said orders for big-ticket durable goods fell a whopping 6.2 percent in October, a further bad sign for manufacturing.

The drop in durable goods -- such as planes, automobiles and appliances -- was sharper than the 2.5 percent decline expected on Wall Street.

"The combination of sharp declines in consumer spending and capital goods shipments in October points to a very weak fourth-quarter GDP report and, at this point, we think a decline in the neighborhood of 4.0 in real GDP looks likely in the fourth quarter," said John Ryding at RDQ Economics.

On Wall Street, traders looked past the bleak data though and sent the Dow Jones industrial climbing 2.91 percent on bargain hunting at its close, in the fourth straight gain that has added more than 1,000 points to the index to finish at 8,726.61 points.

In European trade, Frankfurt shed 1.06 percent, Paris dipped 2.15 percent and London lost 1.84 percent near the half-way stage.

The Federal Reserve on Wednesday meanwhile gave formal approval to Bank of America's acquisition of Merrill Lynch, the Wall Street icon battered by the housing and credit crisis.

The 50-billion-dollar stock acquisition had been announced in September at the same time rival Lehman Brothers collapsed and fears were rising over the survival of Merrill, the brokerage giant.

On finalizing the deal, Bank of America will bolster its position as the largest US banking and financial firm with assets of 2.7 trillion dollars.

Caught in the fallout of the financial maelstorm, governments around the world have launched tax and spending programs to encourage spending and business activity, with the coordinated EU-wide plan seen as more effective than individual country efforts.

Of the EU's total package, 170 billion euros will come from national government budgets and about 30 billion euros from the budgets of the EU and the European Investment Bank.

German Chancellor Angela Merkel warned against a "race" between European Union states over the size of their economic stimulus packages, insisting Berlin was already pulling its weight.

"We should not fall into a race of billions (of euros)," Merkel said as the European Commission put forward its sweeping package.

Merkel said Germany needed "a policy of moderation, centrism and practical reason" to face what economists say could be the worst downturn since the Great Depression in the 1930s.