Global economic woes deepen

By Richard Hubbard

LONDON (Reuters) - Bleak economic data in Europe and disappointing December retail sales figures in the United States unsettled financial markets on Thursday, strengthening the case for more government stimulus and encouraging rate cuts.

The Bank of England, which cut its key interest rate to an historic low of 1.5 percent from 2.0 percent, said the world economy appeared to be undergoing an unusually sharp and synchronised downturn.

"Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time," the central bank said in a statement.

Wal-Mart Stores, the world's largest retailer, posted weak December same-store sales, and cut its quarterly earnings forecast as several other retailers also warned that earnings would be worse than expected in the fourth quarter that included the key 2008 holiday shopping season.

The European Commission earlier revealed that economic sentiment in the 15 countries using the euro plunged to an all-time low in December amid rising unemployment and as inflation expectations tumbled.

The euro zone economy is sinking deeper into its first recession in the wake of the credit crunch, which slashed financing to companies and households, curbing demand and causing belt-tightening.

Germany said manufacturing orders had dropped by a much bigger-than-expected 6.0 percent in November, hit by collapsing demand at home and abroad. Exports had fallen by an unprecedented 10.6 percent in November as demand for cars and others mainstays of the manufacturing economy plummeted.

Europe's biggest economy and the world's largest exporter posted the biggest monthly drop in exports since reunification in 1990, sending the euro lower against the dollar.