Global financial crisis shifts gears with fears of recession, EU to offer aid

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LONDON/HONG KONG, Oct 16 (Reuters): The global financial crisis shifted gears Thursday with fears of recession battering financial markets even as governments sought yet more action to pull the world economy from the brink of collapse.
European Union leaders, meeting in Brussels, were to call for action to combat economic decline, including support for industry, according to a summit draft obtained by the news agency.
Switzerland's two largest banks-UBS and Credit Suisse-became the latest to say they were receiving emergency funding as the country's government and other investors moved to shore them up.
Japan's Prime Minister, Taro Aso, said Washington may need to push yet more cash into its banks to restore investor confidence, shattered by a crisis that began with a US housing market collapse and now threatens economies worldwide.
The European Central Bank (ECB) said it would provide up to 5 billion euros ($6.83 billion) to Hungary to pump up liquidity.
But all the moves were overshadowed by sharp losses on European and Asian stock markets, which themselves followed a tumble on Wall Street Wednesday.
"The markets are selling off stocks because investors till think the steps by US authorities are not sufficient," Japan's Aso said.
The pan-European FTSEurofirst 300 was down around 2 per cent and Japan's benchmark Nikkei lost more than 11 per cent.
Lack of confidence remained among financial institutions. Banks deposited a record 210.8 billion euros at the ECB overnight rather than lend to each other.
Until bank-to-bank lending-frozen for much of the last year by uncertainty over which faced financial disaster-is flowing freely again, the credit crisis will not be over.
The 27 EU leaders pledged in their draft summit statement to fight the economic slowdown.
"The European Council underlines its determination to take the necessary steps to react to the slowdown in demand and the contraction in investment and in particular to support European industry," it said.
The leaders also said a forthcoming international summit to reform the global financial system should take early decisions on transparency, global standards of regulation, cross-border supervision and an early warning system to restore confidence.
France, Germany and Britain called Wednesday for leaders of the Group of Eight (G8) major industrialised countries to gather next month with the heads of emerging economies to consider a radical overhaul of the world's 60-year-old financial architecture.
The White House said G8 leaders were expected to meet this year on the worst financial crisis since the Great Depression.
But Japan's Aso, who is chairing the G8 this year, again expressed caution about such a summit.
"Holding such a meeting would mean we are just one step away from a worst-case scenario," he said in parliament. "We are considering the idea, but it is most important to keep the situation from worsening to that stage."
Within the banking industry, UBS said it would get a capital injection of 6 billion Swiss francs ($5.30 billion) from the government and would unload up to $60 billion of illiquid securities and other assets from its balance sheet to a separate fund entity under an agreement with the Swiss National Bank.
Credit Suisse, which announced a net loss of about 1.3 billion Swiss francs ($1.2 billion) for the third quarter after making 2.4 billion francs in fresh writedowns, said it would raise funds from investors including the Qatar Investment Authority, already a major shareholder.