PARIS, Nov 20, 2008 (AFP) - Governments scrambled to cushion the impact of the financial crisis Thursday with France launching a 20-billion-euro sovereign wealth fund and China unveiling a jobs protection plan as the car industry made huge new cuts.

Global markets suffered more heavy losses as the grim news piled up, with Japan reporting that exports fell at the fastest pace in seven years and US data showing jobless claims had soared to a 16-year high.

The impact of the crisis on the auto industry was highlighted when France's PSA Peugeot Citroen announced plans to slash 3,550 jobs and Japanese firms Mazda and Isuzu Motors said they were scrapping a total of 2,700 jobs.

The auto sector plays a strategic role in the French economy and directly or indirectly accounts for one in 10 jobs there.

The latest cuts came as in the United States, Republican lawmakers stalled a drive for an additional 25-billion-dollar bailout for ailing US automakers, insisting they use funds from a previous bill.

Executives from General Motors, Ford and Chrysler had begged Congress for the multibillion dollar loans, warning that the industry faces a "catastrophic collapse" if US lawmakers do not come to the rescue.

On Thursday, France's President Nicolas Sarkozy unveiled a 20-billion-euro (25-billion-dollar) investment fund to shore up key French companies hit by the economic crisis and protect them from foreign predators.

The amount announced was far below the 100 billion euros mooted as start-up capital last month when Sarkozy first announced the measure as a French version of a sovereign wealth fund.

In Britain, the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation called on the government to shield the British auto sector from a credit squeeze through loans and possible guarantees.

Rolls-Royce, the British maker of airplane engines, said it planned to cut up to 2,000 jobs worldwide in 2009. British defence manufacturer BAE Systems said it was cutting 200 jobs as its workload was "tailing off."

And the Anglo-Swedish pharmaceuticals giant AstraZeneca said it would slash 1,400 jobs by 2013 as it shuts factories in Belgium, Spain and Sweden.

In the United States, official figures showed that initial claims for unemployment benefits last week hit their highest point since 1992.

The White House said President George W. Bush would support a new extension of unemployment benefits if it reached his desk after passing through Congress.

"The president believes it would be appropriate to further extend unemployment benefits and he would sign the legislation now pending in Congress," spokeswoman Dana Perino said.

The jobs gloom accelerated the downward spiral of global stocks with Wall Street heading further south after tumbling to its lowest level for over five years on Wednesday.

At 1514 GMT, the Dow Jones Industrial Average was down 201.59 points (2.52 percent) to 7,795.69 after a 427-point slide Wednesday but it later recovered some of the lost ground.

European stock markets plunged in afternoon trading with London down 4.52 percent, Frankfurt losing 5.06 percent and Paris off 5.35 percent.

Dealers' screens were also red across Asia, with stocks dropping 6.9 percent in Tokyo, 6.7 percent in Seoul and 4.2 percent in Sydney.

"It's forced selling," said Bell Potter senior adviser Stuart Smith in Australia. "The market's trying to find an absolute floor."

A top Chinese official meanwhile warned the Asian giant was facing serious unemployment problems due to the global economic crisis.

"The employment situation is critical and this impact (of the crisis) is still unfolding," said Yin Weimin, the social security minister.

Yin said the government would provide financial aid to help firms maintain employment, especially in light industry which employs up to 40 million Chinese, as well as tax cuts aimed at helping the textile industry.

Chinese President Hu Jintao however insisted that his country's economic fundamentals remained strong.

"We can overcome these difficulties and manage to maintain fast but stable economic growth," he said while in Lima for a summit of Asia-Pacific leaders.

The International Monetary Fund meanwhile said its executive board approved a loan of 2.1 billion dollars for Iceland to help it rebound from the financial crisis while four Nordic countries said they would lend Reykjavik 2.5 billion dollars.

The Icelandic economy, highly dependent on banking, has been knocked flat by the credit crisis.