SYDNEY, AUSTRALIA - AUSTRALIA cut interest rates more than expected on Tuesday, presaging likely cuts in Europe later this week in the face of evidence that the global financial crisis has already pushed much of the world into a recession.

The 75 basis point cut followed rate cuts in the United States, China and Japan last week. Britain and the euro zone were expected to follow suit on Thursday with half point reductions in borrowing costs.

But the recession that central banks and governments around the world have tried to ward off loomed ever larger as investors digested a batch of bleak corporate results and dismal economic data.

With the US presidential campaign wrapping up on Tuesday after nearly two years, markets expected some temporary relief for equities from the elimination of one source of uncertainty.

Whether Democrat Barack Obama or Republican John McCain will move into the White House, he will have a tall order in crafting policies to revive the economy from devastation wrought by the worst financial crisis in 80 years.

Indeed, fears about the shrivelling US economy knocked stock markets on Tuesday, with Asia-Pacific stocks falling by 1.9 percent. The one exception was Japan's Nikkei index, up nearly 4 per cent, as exporters gained on the yen's recent weakness.

The latest gloomy note came from the Australian central bank, which said there was 'significant weakness' in major industrial economies in explaining why it cut rates to 5.25 per cent, the lowest since March 2005.

Many analysts were blunter.

'A growing number of indicators have fallen off a cliff in Oct,' said Mr Rory Robertson, interest rate strategist at Macquarie in Sydney.

'Indeed, each of the big developed economies now is either in a severe recession or well on the way,' he said.

Too much loosening?

With Taiwan and South Korea also cutting rates last week, Mr Sherman Chan, an analyst at Moody's Economy.com in Sydney, praised Asian central banks for their assertiveness but sounded a cautionary note.

'Excessive loosening could backfire by sparking fears about the soundness of the economy and financial system,' Mr Chan said in a research note.

'This would be a concern especially to emerging economies, whose appeal to investors has already weakened amid rising risk aversion.'

Synchronised rate cuts by central banks worldwide and emergency government spending packages worth some US$4 trillion (S$5.91 trillion) have brought markets back from the edge of the abyss, though investors have remained wary.

'We expect another major episode of risk aversion to take hold of markets in the near future,' said Mr Dariusz Kowalczyk, chief investment strategist with CFC Seymour in Hong Kong.

The cost of rescue measures was illustrated by South Korea's latest foreign reserves report. The country's stockpile, the sixth largest in the world, fell by a record amount in Oct to the lowest level in almost three years.

The money was drawn down by authorities injecting billions of dollars into the country's banking system to stop the won's freefall and avert a repeat of the 1997-98 financial crisis that had put the country on the verge of default.

There was also more proof of the damage that the financial crisis has inflicted on ordinary wage earners. In Japan, summer bonuses fell and overtime pay dropped in September from a year earlier, underscoring the weakness of the economy that analysts polled by Reuters said is already in a recession.

Car trouble

Car sales, seen as one of the gauges of an economy's overall health, added to the despair.

US vehicle sales plunged in Oct, with General Motors Co down 45 per cent, Ford Motor Co off 30 per cent and Toyota Motor Co down 23 per cent.

Adjusted for US population changes, GM said, Oct was the weakest month for the battered auto industry since the end of World War Two.

New car sales also fell across Europe - down 40 per cent in Spain and 19 per cent in Italy.

The European Commission said the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year, and called for coordinated action to prevent further collapse.

In the US, factory activity contracted sharply in Oct, falling to its lowest point in 26 years, according one widely watched index. Two Chinese manufacturing surveys also registered all-time lows in Oct.

'Pretty grim. It means we're in a recession. It's as simple as that ...a pretty solid manufacturing recession,' said Mr Robert Macintosh, chief economist at Eaton Vance Corp. 'The question is how long or deep is it going to be?'

Company results around the globe looked weak, particularly in the financial sector, where the credit crunch triggered by a downturn in the US housing market virtually wiped out bank profits.

UBS and Swiss Reinsurance were to report their third-quarter results on Tuesday.

Policymakers were set to gather again to plot their next moves. Euro zone finance ministers meet on Tuesday in Brussels to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management.

And finance chiefs from the 'Group of 20' nations gather in Brazil later this week to prepare for a US-hosted Nov 15 summit of world leaders to chart a way out of the crisis. --REUTERS