Obama vows aid for car industry

US President-elect Barack Obama says he will not allow the country's car industry to collapse, but any state help must come with strict conditions.

The industry and its stakeholders would have to restructure, he told NBC television's Meet the Press.

Congress and the White House have been holding talks on a plan to rescue the beleaguered US car industry.

Mr Obama warned the economy would get worse before it improved, but any aid plan needed strong regulations.

He also named Japanese-American General Eric Shinseki as Veterans' Affairs chief.

He said Gen Shinseki was exactly the right person to honour returning soldiers.

The general left his former job as US Army chief of staff after disagreeing with the then Defence Secretary, Donald Rumsfeld, over the number of US troops needed to control Iraq after the invasion.

Financial controls

The country's struggling carmakers have asked for a $34bn (£23bn) rescue plan. Congress and the White House have been holding weekend talks to find a solution.

There had been disagreement over where the money should come from, with Congressional Democrats opposing President George Bush's proposal to modify a $25bn fund which was set up to promote fuel-efficient technologies.

But according to Congressional sources, House Speaker Nancy Pelosi, a Democrat, has suggested that the fund could be used under certain conditions.

The plan is a stop-gap measure intended to help the three firms survive until Mr Obama's administration takes over in January and can craft a longer-term solution, correspondents say.

In the NBC interview, Mr Obama avoided going into detail about the car industry rescue plan, but said letting major carmakers such as General Motors, Ford and Chrysler go bankrupt was not an option.

"That means we're going to have to figure out how to put the pressure in the same way a bankruptcy court would... but do so in a way that allows them to keep their factory doors open," he said.

The 2008 winner of the Nobel economics prize Paul Krugman said he doubted the US car sector would survive, but that it was worth supporting it in the short term.

"In the end these companies will probably disappear," the economics professor at Princeton University said.

Mr Obama said he also wanted to see tighter controls on the financial sector as a whole.

"As part of our economic recovery package what you will see coming out of my administration right at the centre is a strong set of financial regulations which banks, ratings agencies, mortgage brokers, a whole bunch of folks (will) start having to be much more accountable and behave much more responsibly."

UK car parts firm Wagon collapses

The UK arm of leading European car parts business, Wagon Automotive, is to go into administration after talks on a new funding deal with its banks failed.

Wagon Automotive employs 500 workers in the West Midlands and supplies parts to Ford, Honda, General Motors and Nissan.

The firm said it hoped some of its plants in other countries would be able to avoid going into administration.

Birmingham-based Wagon employs over 4,000 workers across Europe, and has struggled due to the car market slump.

Several of its customers have cut back production or temporarily shut plants in order to reduce their own costs.

The corporate restructuring group, Zolfo Cooper, is expected to act as Wagon's UK administrator.

In a statement the company said: "Decisions on the overseas group companies have not been made."

"It is anticipated that some may be able to continue to trade without needing insolvency protection," it said.

The firm has plants in Coventry and Walsall.

Funding problems

Shares in Wagon were suspended in October after it reported a "steep deterioration" in the European car market and said it was in funding talks with its lenders.

The firm - which is controlled by the American billionaire Wilbur Ross - failed to persuade its banks to led it more money.

The banks, led by the Royal Bank of Scotland and including Lloyds TSB, both of which are now largely controlled by the government, declined to contribute 12m euros (£10.3m; $15.2m) to a 50m-euro funding package.

Wagon's carmaking clients had put up 30m euros and Mr Ross was understood to have been prepared to contribute 10m euros through the purchase of one of its subsidiaries.

The funding package would have kept the firm running for another three months. The banks had already agreed loans totalling 155m euros during the summer.

The Chancellor, Alistair Darling, is set to chair the inaugural meeting of the Lending Panel later this week, which was set up in the pre-Budget report to monitor closely banks' lending practices to companies and individuals.

The company traces its roots back to Wagon Repairs, a business set up at the end of World War I to maintain railway rolling stock.

India unveils $4bn stimulus plan

India has announced $4bn (£2.72bn) in extra spending to boost its economy as the global financial crisis unfolds.

The government said it was also planning a substantial spending increase in next year's budget.

The move came as the Reserve Bank of India cut its key interest rate by one percentage point, from 7.5% to 6.5%, on Saturday to encourage spending.

It is the third time since October the central bank has cut rates, which are now at their lowest since June 2006.

As well as the global financial situation, business confidence in India has also fallen in the wake of the Mumbai attacks that left at least 170 dead.

Growth stimulus

Prime Minister Manmohan Singh's office said in a statement: "The government has decided to seek authorisation for additional planned expenditure of up to 200bn rupees ($4bn) in the current year."

The prime minister's office said the government was keeping a close watch on the economic situation and would take any additional needed to "maintain the pace of economic activity".

Under the plan, various categories of value-added tax will be cut by up to 4 percentage points to encourage consumer spending.

The package also includes measures to boost infrastructure spending, help businesses, and aid labour-intensive export sectors such as textiles and handicrafts.

Mr Singh, who recently took control of the finance ministry, last week forecast that India's economy would grow by 7.5% in the year to March 2009.

However, economists say growth could be as low as 6.8% this financial year, and 5.5% the following year.

Business leaders had hoped the government would do more.

Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry, said the package was pointing in the right direction, but "could have done even more" to help boost growth.

India's rising budget deficit means it can do far less than a country like China - which last month announced a $586bn stimulus package - to spend its way out of economic problems.

Until now, India has focused on using monetary policy to counter the effects of the global slowdown.

Since mid-September, the Reserve Bank of India has injected $60.2bn into the financial system to boost liquidity.

Oil prices up on talk of Opec cut

Oil prices have rebounded from four-year lows after Opec's president said the oil cartel could announce a large reduction in oil production.

US light, sweet crude rose $2.55 to $43.36 a barrel and London's Brent crude went up $2.51 to $42.25 a barrel.

On Friday, oil prices fell to a low of $40.50 after weak US economic data.

Opec President Chakib Khelil said on Saturday the cartel could "surprise" markets with an output cut at its meeting on 17 December in Algeria.

He did not specify how big the cut could be, but said that some analysts were expecting a reduction of up to 2 million barrels per day.

"The possibility of Opec moving to tighten up the oil market is real," said David Moore at Commonwealth Bank of Australia.

A jump in stock markets and hopes for a stimulus plan for US carmakers also helped support oil prices.

Oil prices reached an all-time record of $147 a barrel in July.

Now analysts forecast much lower prices amid the worsening situation in the global economy.

Merrill Lynch said crude prices could fall to $25 a barrel if China is hit hard by the global recession.

Markets surge on stimulus hopes

European and Asian shares have surged on hopes that new stimulus plans in the US and other countries will revive global economic growth.

In the UK, the benchmark FTSE 100 jumped almost 5%, while the German Dax and France's Cac 40 rose even higher, up almost 7%.

Earlier, Asian stock markets also rallied. Korea's Kospi index rose 7.5% to a near four-week high.

Hong Kong's Hang Seng ended up almost 9%, while Japan's Nikkei added 5.2%.

Stock markets in India and mainland China also rose.

Great expectations

US President-elect Barack Obama said on Saturday his recovery plan would offer the biggest infrastructure investment since the creation of an interstate highway in the 1950s and create at least 2.5 million new jobs.

Hopes that Congress will soon pass legislation that will save the "big three" Detroit car makers from collapse also helped to cheer investors after a dire session on Friday fuelled by grim US unemployment figures.

South Korea and India also unveiled measures to help firms and boost their economies.

"Despite bad US jobs data [announced on Friday], markets are gaining on a sense that they've hit the bottom and expectations for economic stimulus measures being put out by many governments," said Hiroake Osakabe at Chibagin Asset Management.

"There was also talk about further actions by the Chinese government to protect its growth," said Kim Seung-han at HI Investment & Securities.

The UK FTSE rose 197.8 points to 4,247, while Germany's Dax climbed 304.2 points to 4,685 and France's Cac added 192.4 points to 3,180.4.

Mining and construction groups and firms that make machinery were the biggest gainers on hopes that they will benefit from increased investment on infrastructure.