Recession fears eclipse AIG rescue

By Daniel Trotta

NEW YORK (Reuters) - The United States pledged more support for struggling insurer AIG on Monday as international action to halt the financial crisis failed to dent investor sentiment that the economy was in for a long and deep recession.

Initial optimism over the AIG plan and China's $586 billion (375 billion pounds) stimulus package collapsed in the face of dismal U.S. company news including layoffs, a major bankruptcy filing, the agony of the once-mighty U.S. auto industry and a record $29 billion quarterly loss by mortgage giant Fannie Mae.

The Chinese plan, announced Sunday, gave a temporary boost to markets, but they were dragged back down by Japanese manufacturers reporting their biggest quarterly slump in machinery orders in a decade and Fitch saying the credit ratings of South Korea, South Africa, Russia and Mexico were in jeopardy.

Fitch Ratings also cut Romania's credit to "junk" status and downgraded Bulgaria, Kazakhstan and Hungary.

"China's stimulus won't work instantaneously and we're already in a global recession," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

Central bankers meeting in Brazil vowed to remain vigilant while also warning there was no single solution that could be applied across borders.

U.S. President-elect Barack Obama, who takes office on January 20 and favours spending many billions more in a fiscal stimulus package, visited the White House on Monday to receive a tour from outgoing President George W. Bush and ease the transition of power.

Obama's Treasury Department will also have at its disposal the $700 billion rescue plan known as the Troubled Asset Relief Program (TARP), passed by the U.S. Congress in the heat of the presidential campaign.