Japan warns of longer slump (Reuters)

TOKYO (Reuters) –

Japan's recession could last even longer than feared, the country's economy minister warned on Tuesday, echoing comments from U.S. officials that the pain from the global financial crisis was far from over.

A day after a report showed Japan had toppled into recession, Economy Minister Kaoru Yosano said the next fiscal year starting in April could also see negative growth for the world's second-biggest economy.

"I can hardly be confident that it would be positive," he told a news conference following a cabinet meeting.

Australia's biggest investment bank, Macquarie Group, said it was heading for its first fall in annual profit in 17 years -- the latest gloomy news from the financial sector following Citigroup's announcement it was cutting 52,000 jobs, the second-largest corporate lay-off plan in history.

In Washington, lawmakers argued over a proposal by Senate Democrats for a $25 billion bailout loan for the auto industry to stave off an even wider economic collapse.

"The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.

Automakers have been hit by a collapse in consumer spending, triggered by a housing crash and worsened by rising unemployment. U.S. officials say even with major stimulus measures in place, it will take considerable time for the U.S. economy to recover.

"There's going to be stress in the capital markets for a number of months here because housing prices are still declining and I think it's moved beyond housing," Treasury Secretary Henry Paulson said at a conference.

"We've got a lot of work to do to restore the financial system, and I think restoring the financial system will go a long way toward helping the economy to recover."

Kansas City Federal Reserve President Thomas Hoenig said there was little more the U.S. central bank could do to help.

"The Fed has done about as much as it can do," he said in a TV interview. "I don't know of any painless way to rebalance your economy, you have to go through this adjustment, and we will get through it, but it's not going to be without consequence.

HEADING FOR RECESSION

The Philadelphia Federal Reserve's latest Survey of Professional Forecasters, released on Monday, said the U.S. economy entered a recession in April and would not emerge for 14 months, which would be the longest contraction since 1982.

Japan announced a 0.1 percent third-quarter contraction, joining the euro zone in recession based on the popular definition of two consecutive quarters of falling gross domestic product.

A G20 meeting at the weekend in Washington failed to come up with new measures to tackle the crisis, agreeing on broad steps but leaving it up to each country to tailor their own response. Markets were unimpressed, with stock markets around the world falling on Monday and Asian bourses dropping again on Tuesday.

Dealers said stocks were shaken by Citigroup's announcement that it was cutting 15 percent of its workforce. HSBC said it was shedding 500 jobs in Asia, mostly in Hong Kong.

In Australia, Macquarie said its first half profit fell 43 percent and it had written off $750 million from assets, but its shares surged as much as 26 percent after it doused fears that it would have to raise capital.

"It's a relief," said Leigh Gardner, head of distribution at ABN AMRO. "There'd been some concern about an equity raising in the profit announcement today."

The crisis has spread well beyond banks, with U.S. automakers facing collapse. The proposal by Senate Democrats to extend $25 billion in loans is opposed by Republicans who want to ensure any bailout package forces the industry to improve efficiency.

"We're surprised that Senate Democrats would propose a bailout that fails to require automakers to make the hard decisions needed to restructure and become viable," White House spokeswoman Dana Perino said.

(Additional reporting by Reuters bureaus worldwide; Writing by Andrew Marshall; Editing by Neil Fullick)

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