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South Korea’s economy may shrink in the first and second quarters of next year, affected by a global economic slowdown, President Lee Myung Bak said today.

“The world economy is difficult and South Korea is heavily dependent on the external side,” Lee said at a meeting at the presidential house in Seoul today, according to his office Web site. “Even though we may post positive annual growth, we’re in danger of negative growth in the first and second quarters.”

South Korea’s economy will expand 2 percent, the slowest pace in 11 years, in 2009 as the deepening global recession cools demand at home and abroad, the central bank said on Dec. 12. The economy last contracted for two consecutive quarters in 1998, and Lee’s comments come after he pledged last week to ensure growth next year.

“Negative growth is unavoidable,” said Chun Chong Woo, senior economist at SC First Bank Korea Ltd. “We’re bound to be affected by the global slump, and the government will have to think of more aggressive policies to help spur the economy.”

Exports of goods will rise 1.3 percent, slowing from an estimated 3.6 percent gain in 2008, the central bank forecast in its 2009 outlook. The nation targets exports of $450 billion next year, the Minister of Knowledge Economy said yesterday, trimming its November forecast of $500 billion payday loans.

Cut & Stimulate

South Korea should use interest-rate cuts and fiscal stimulus to cushion the economy from the global recession and avoid depleting its foreign-currency reserves to prop up the won, the Organization for Economic Cooperation and Development said on Dec. 17.

The Bank of Korea has cut its key rate by 2.25 percentage points since October, the most aggressive easing since it first set a benchmark in 1999. The bank most recently cut the benchmark rate by 1 percentage point to a record low 3 percent on Dec. 11.

South Korea is also pumping funds into banks, cutting taxes and boosting public spending to limit the fallout from the global credit crisis, which sent the Korean won down more than 28 percent and the stock index tumbling 41 percent this year.

“We see the first and second quarters to be the bottom,” Lee said. “There’s hardly any country posting economic growth from the fourth quarter to the first quarter.

“There is an end to this agony,” he said. “It won’t last 10 or 20 years.”

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China cut interest rates for the fifth time in three months to support the world’s fourth-biggest economy after trade growth collapsed because of recessions in the U.S., Europe and Japan.

The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent from tomorrow, the People’s Bank of China said on its Web site. The central bank also reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage point.

Exports fell for the first time in seven years last month, imports plunged and manufacturing contracted by a record. China’s slowdown will deepen before a 4 trillion yuan ($584 billion) stimulus package kicks in from the second quarter of next year, Liu He, a senior policy official, said Dec. 12.

“The central bank won’t stop the rate-cutting cycle until the economy starts to recover,” said Li Wei, an economist at Standard Chartered Bank Plc in Shanghai. “It may not boost borrowing, but the government needs to show that it’s doing something.”

The reserve requirement will drop to 15.5 percent for big banks and to 13.5 percent for smaller ones effective Dec. 25.

China reduced rates by the most in 11 years last month and announced the package of spending through 2010 on infrastructure and low-cost housing. The State Council pledged Dec. 13 to boost money supply by 17 percent next year to encourage lending and buoy domestic consumption.

Still, economic growth may slump to 5 percent in the first half of next year, less than half the 11.9 percent expansion in all of 2007, according to Royal Bank of Scotland Plc health insurance.

The slowdown threatens to trigger social unrest as factories close and unemployment climbs in the world’s most populous nation. It may also reduce the nation’s contribution to global growth, forecast by Merrill Lynch & Co. at 80 percent next year.

Uniden Corp., a Japanese maker of wireless communication gear including cordless phones, said Dec. 11 it will eliminate 6,200 jobs in China. Zhang Ping, China’s top economic planner, warned last month of the risk of “massive unemployment.”

Besides the trade collapse, weakness in the property market is undermining investment, construction, consumption and economic growth. Home sales dropped 20.6 percent in the first 11 months from a year earlier, according to the statistics bureau.

The government has switched from battling inflation in the first half of the year to guarding against the risk that falling prices will contribute to the economy spiraling down. Inflation was the slowest in 22 months in November.

China needs to prepare for a “worst case scenario” as the global economic slump deepens, central bank Governor Zhou Xiaochuan said Dec. 4.

China’s economy will expand by 7.5 percent next year, the least in almost two decades, the World Bank forecast last month. The nation is targeting an 8 percent expansion to generate jobs and avoid social instability, China Banking Regulatory Commission Chairman Liu Mingkang said in Beijing on Dec. 13.

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More than a year into the credit crisis, Federal Reserve Chairman Ben S. Bernanke is still trying to establish how far he’s willing to go to aid troubled companies.

Bernanke, in a letter released yesterday, rejected the idea that the central bank should provide assistance to automakers, saying that such aid would involve the Fed in “industrial policy,” an area best left to Congress. The letter came in response to a Dec. 3 inquiry from Senate Banking Chairman Christopher Dodd.

The exchange reflects uncertainty over the limits of the Fed’s willingness to act following conflicting signals Bernanke has sent this year. While the Fed rescued Bear Stearns Cos. and American International Group Inc., it refused to intervene on behalf of Lehman Brothers Holdings Inc. — only to see Lehman’s failure trigger widespread losses and worsen the credit crisis.

Bernanke is attempting to re-establish a clear line: that the central bank will only assist firms vital to the financial system, a definition that would exclude companies such as General Motors Corp.

“He’s absolutely right to draw that line,” Martin Feldstein, the Harvard University economist who chaired President Ronald Reagan’s Council of Economic Advisers, said in an interview with Bloomberg Television. The Fed is responsible for the “health and stability of the financial sector,” and “it would be a very big departure to start doing auto companies and who-knows-what-else,” Feldstein said.

‘Healthy’ Finance

Bernanke’s comments came in a letter dated Dec. 5 to Dodd, who requested the Fed chief’s position on the automakers’ reorganization plans and whether the central bank has authority to lend to the companies.

“American manufacturing is just as important to our nation’s economy as a healthy financial sector,” Dodd said in a statement. “I look forward to continuing my oversight and work with the Fed to accomplish the goals that we both agree will secure American jobs and stabilize our economy.”

Congressional Democrats and White House negotiators last night agreed on the outlines of a $15 billion plan to give GM and Chrysler LLC federal loans to stay in business while requiring them to restructure their operations.

“Bipartisan hard work has paid off and I understand an agreement has been reached,” Senator Carl Levin, a Michigan Democrat, said in a statement late yesterday. GM and Chrysler have said they need at least $14 billion in combined aid to keep from running out of cash by early next year.

Car Czar

The legislation would include the appointment of a so- called car czar who could force the companies into Chapter 11 bankruptcy if the companies don’t come up with their own plan by March 31, a Bush administration official told reporters on the condition of anonymity.

“What the Fed does should be ratified by the Treasury and ultimately by the Congress,” Feldstein said. “If the Congress is telling us right now, ‘No, we don’t want to provide that money to the auto companies,’ then surely the Fed shouldn’t be providing it car insurance.”

Bernanke said in the letter to Dodd that the central bank can only lend in emergency circumstances when the financing can “be secured to its satisfaction.” It’s “unclear” whether the three U.S. automakers could “meet this requirement.”

New Policy Realms

“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”

The “critical unknown” in the automakers’ plans is “their ability to develop and produce vehicles that the public wants to buy,” Bernanke said.

The comments represent Bernanke’s first public remarks on whether the Fed would lend to the beleaguered industry. Two regional Fed-bank chiefs said last week that the issue was best left to Congress.

The letter also refines Bernanke’s position on the rescue of individual companies following criticism by economists and investors in recent months that his approach was inconsistent toward Bear Stearns, Lehman and AIG.

Tools Available

“In the absence of an appropriate, comprehensive legal or regulatory framework, the Federal Reserve and the Treasury dealt with the cases of Bear Stearns and AIG using the tools available,” Bernanke said in a Dec. 1 speech. Lehman didn’t have enough collateral, making its collapse “unavoidable,” he said.

After the failure of Lehman jolted credit markets, Congress passed the $700 billion Troubled Asset Relief Program on Oct. 3, authorizing Treasury to inject capital into banks. Under the Nov. 23 rescue of Citigroup Inc., the Fed agreed to backstop a $306 billion pool of distressed assets after the bank, the Treasury and the Federal Deposit Insurance Corp. assumed initial losses.

“We now have tools to address any similar situation that might arise in the future,” Bernanke said in his speech last week.

The Fed’s decisions during the past year to support financial firms and short-term debt markets were aimed at ensuring financial stability and supporting the economy, Bernanke said in the speech.

While the automakers have been affected by the credit crunch, it’s “difficult to assess” the broader consequences of one or more of the carmakers becoming insolvent, he said.

Even so, Bernanke urged lawmakers to consider alternatives to direct aid, such as an “orderly bankruptcy reorganization with government aid, and government assisted mergers.”

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Pakistan’s central bank said the nation’s economy may miss growth targets and inflation may rise as high as 22 percent.

The State Bank of Pakistan, in an annual report today, said the economic growth rate during fiscal year the fiscal year that is about to end is expected to be around 3.5 percent to 4.5 percent compared with a target of 5.8 percent.

Pakistan’s economy may expand as little as 3 percent this fiscal year in response to a “tightening” of economic policies and slowing growth among the nation’s trading partners, the International Monetary Fund said in a statement this week. That would be the slowest pace since 2000, when South Asia’s second- largest economy grew 2 percent online payday loans.

In order to secure an IMF loan, Pakistan’s government and central bank have agreed to eliminate electricity subsidies by the end of June 2009 and to continue to adjust fuel prices to reflect international prices. That should reduce the budget deficit as a proportion of gross domestic product to 3.3 percent by 2009-10 from 4.2 percent in 2008-09 and 7.4 percent this year, the IMF said.

Pakistan was forced to turn to the IMF for a bailout after its foreign reserves shrunk 75 percent in a year to $3.45 billion.

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Japan's exports declined at the fastest pace in almost seven years in October as the intensifying global financial crisis stifled sales of cars and electronics.

Exports, the main engine of Japan's economic growth in the past six years, fell 7.7 percent from a year earlier, the biggest drop since December 2001, the Finance Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted an 8 percent drop.

The Nikkei 225 Stock Average dropped 4.1 percent on concern exporters' profits will deteriorate as the global slowdown spreads to Asia, where Japan's shipments dropped last month for the first time in six years. Automakers Isuzu Motors Ltd. and Hino Motors Ltd. said today they plan to cut output in response to weaker overseas sales.

“We're in store for even more depressing export news,'' said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. “Exports will heavily weigh on Japan's economy as the impact of the global financial crisis deepens.''

The yen traded at 95.72 per dollar at 12:16 p.m. in Tokyo from 95.88 before the report was published. Japan's currency has advanced 9.2 percent since September, eroding exporters' earnings.

Japan's economy contracted for a second consecutive quarter in the three months ended Sept. 30, following the U.S. and Europe into recessions, as businesses cut spending. Growth in China, Japan's largest trading partner, has slowed for four quarters.

Emerging Markets

Today's report showed the global financial crisis is hurting demand from the emerging markets that have propped up Japan's export growth as the U cash in 1 hour.S. and Europe falter. Exports to Asia fell 4 percent, the first decline in more than six years. Shipments to China fell for the first time in three years.

Shipments to Europe plunged 17.2 percent, the largest drop since December 2001, and demand from the U.S. dropped 19 percent.

“Exports and capital spending have declined across the board as the outlook for the key European and North American economies has become increasingly gloomy,'' said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. “Japan's real gross domestic product will inevitably shrink in the fourth quarter and in the first quarter of next year.''

Imports climbed 7.4 percent, causing a trade deficit of 63.9 billion yen ($666 million), the third shortfall this year.

Automobile exports fell 15 percent, the ministry said.

Isuzu, Hino

Isuzu Motors, Japan's largest maker of light-duty trucks, reduce output from next month and cut 1,400 temporary and part- time workers. Hino, the country's largest heavy-duty truckmaker, will stop production at a Tokyo plant for five days next month. Both companies slashed profit forecasts last month.

“Declines in exports and production may work as a vicious circle for the economy,'' said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “Japan's downturn will probably continue through the first quarter of next year.''

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Gov. Linda Lingle and Lt. Gov. James “Duke” Aiona will travel to Asia next week to promote travel to Hawaii.

They will travel separately, visiting Indonesia, Taiwan, China, Japan and South Korea with the goal of increasing Asian visitors to the state.

The China and Korea markets are of special interest because travel restrictions recently were eased for leisure travel to the United States.

The trips will run Nov. 11-22. Lingle will travel to China, Taiwan and Indonesia. Aiona will visit Japan and South Korea. Both will be out of the country at the same time for about seven days, leaving Attorney General Mark Bennett as acting governor.

Lingle also will meet with Asian airline officials to discuss the possibility of increasing the number of flights and seats from Asian cities to Hawaii.

“It is critical that we do all we can to reach out to our traditional visitor base in Japan as well as emerging markets such as China and Korea to encourage people to visit Hawaii, and to ensure our state is well-positioned with increased flights and air seat capacity,” Lingle said in a prepared statement payday advance loans.

The trip is a result in part of meetings earlier this year with local hotel executives and industry leaders who encouraged the governor to increase Hawaii’s tourism outreach and marketing.

Travel expenses will be covered by several sources, including the East-West Center, the Hawaii Department of Transportation and the Hawaii Department of Business, Economic Development and Tourism.

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Barack Obama won't have time to catch his breath.

Having won the longest election in U.S. history, toppling two formidable rivals and succeeding in his improbable quest to become the first African-American president, he will immediately begin the arduous work of turning campaign promises into a viable agenda, aides said.

Illinois Senator Obama inherits neither peace nor prosperity, but rather the toughest environment for a new president since Franklin D. Roosevelt. He takes office with the nation in the grip of the worst economic crisis in three- quarters of a century and embroiled in two foreign wars.

“It's been decades since we've seen something like this, where a president has to deal with major crises in national security and economic policy at the same time,'' said presidential historian Michael Beschloss.

Obama, 47, acknowledged as much in his acceptance speech before at least 125,000 people in Chicago's Grant Park shortly after midnight.

`Planet in Peril'

“Even as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis in a century,'' he said. “There is new energy to harness and new jobs to be created; new schools to build and threats to meet and alliances to repair.''

On the campaign trail, Obama vowed to pursue an “Apollo- style'' program to transform the country's energy economy, a massive overhaul of the health-care system, and a slew of other proposals to bolster the middle class and restore economic confidence.

When President George W. Bush took office in 2001, he inherited a record budget surplus and a nation at peace. Bush's initial to-do list — spending that surplus, pursuing a “humble foreign policy,'' and raising school test scores — now sounds trivial. By contrast, the Obama administration will begin as economic indicators suggest the U.S. may be headed for the deepest recession in a quarter century and the most complicated financial crisis since the Great Depression. Wages are stagnant, credit is squeezed and costs are escalating.

Deficits

Obama has two months to form a government and prioritize a long list of costly demands at a time of unprecedented deficits. Though FDR had to tackle an unemployment rate four times the current 6 percent jobless figure, he didn't inherit two wars, a global terrorist threat or a world with unstable nuclear-armed states.

The new president is likely to confront stiff resistance from Republicans accustomed to decades of partisan fights in Washington. The task of governing will be both monumental and delicate.

So far, Obama has shown no signs of curbing his ambitious proposals. The turmoil, he has said, makes his agenda for taxes, energy, health care, education and the financial industry more pressing.

“The crisis crystallized in so many ways what was really at stake,'' said Anita Dunn, a senior Obama adviser. “We had been saying it's a big election about big things.'' For many people, the Wall Street crisis and the $700 billion bailout brought “into focus how big the challenges are.''

About three weeks ago, as the crises deepened and financial markets reeled, Obama increased the proposed cost of his “middle-class rescue plan'' to $175 billion from $115 billion.

Advisers said pushing through that stimulus, which would direct funds to financially strapped states, rebuild infrastructure and give a $1,000 tax rebate to eligible families, will be Obama's top priority in January if Congress doesn't pass a comparable plan this month.

Public Confidence

Taking the helm during the Great Depression, Roosevelt's first step was to shore up the confidence of the public. The 32nd president staved off a run on banks and put in place dozens of programs to stimulate the economy, create jobs, regulate the financial system, rebuild infrastructure and create a social safety net bad credit pay day loans.

With Obama's skill at oratory and the unflappable air he projected during the bailout vote, he could likewise send a reassuring message.

“The model should be FDR,'' tamping down panic and letting America know that “action is essential,'' said political scientist Fred I. Greenstein, author of “The Presidential Difference: Leadership Style from FDR to George W. Bush.''

The public's unease goes deeper than the immediate crisis. The nation has “been through some terrible shocks in last 10 years — a contested election, the 9/11 attacks, two wars, Hurricane Katrina. The president is going to have to heal the country,'' Beschloss said.

Agenda Needed

That will take more than a calm demeanor and rhetorical skill; Obama needs an agenda that achieves promises he has made, and that will require buy-in from financial and military leaders and Congress.

“It's going to be a challenge of leadership. Can government fix anything, can it overcome gridlock?'' said Julian Zelizer, a historian at Princeton University in New Jersey.

Roosevelt invented a measure by which he could be judged: the First 100 Days. It's been the yardstick ever since. Republican Ronald Reagan focused his agenda early; Democrats Jimmy Carter and Bill Clinton didn't.

“FDR had 15 major bills in his famous 100 days, and the Reagan Revolution was all within a year,'' said Alan Lichtman, professor of history at American University in Washington. “The next president has to try a lot of things and see what works.''

Manageable Goals

Obama must set priorities and select a few manageable goals he can accomplish quickly, historians said. A president's mandate is usually strongest at the beginning, giving him the best chance to pass his agenda and administer bitter medicine.

“You sort which things you can do quickly and which you have to explain to your country will take time,'' said Stephen Hess, an analyst at the Brookings Institution in Washington who has been involved in every presidential transition since Dwight D. Eisenhower's handoff to John F. Kennedy.

“Ronald Reagan could list on the fingers of one hand exactly the things he wanted to do on Jan. 20, 1981,'' Hess said.

David Eisenhower, director of the Institute for Public Service at the University of Pennsylvania's Annenberg School in Philadelphia, said Obama would have to divide programs into three phases: “Relief, Reform, and Recovery.''

“Relief must begin with banking, the insurance industry. Recovery includes energy, education, foreign policy, relations with NATO, new overtures in the Mideast,'' said Eisenhower, grandson of President Eisenhower. “Reform would be taxes, health, re-industrialization.''

Foreign Policy

While economic and domestic concerns are front and center, Obama can't leave foreign policy on the back burner. He inherits two wars, a defiant Iran and an ever-present al-Qaeda. Middle East peace talks are flagging, Europe faces an assertive Russia and hurdles remain over an agreement to end North Korea's nuclear program.

In Iraq, Obama has vowed to withdraw most combat troops within 16 months, while sending more forces to Afghanistan, where a resurgent Taliban is staging attacks from tribal areas along the border with Pakistan, an unstable nuclear-armed U.S. ally.

Obama has pledged to work more closely with allies and engage adversaries such as Iran in talks.

Speaking in Ohio on Oct. 13, Obama said his agenda wouldn't “be easy or come without cost.''

That, he said, means investing in “energy, education and health care that bear directly on our economic future, while deferring other things we can afford to do without.''

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China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports.

Gross domestic product rose 9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing today. That was less than any of the 12 estimates in a Bloomberg News survey and the 10.1 percent gain in the previous three months.

The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting. The cabinet announced yesterday tax cuts for exporters and increased infrastructure investment and the central bank may be poised to cut interest rates for the third time this year.

“This will shake confidence and underscores that no one is immune,'' said Ben Simpfendorfer, an economist with Royal Bank of Scotland Plc in Hong Kong. He predicts three more rate cuts by the middle of next year and a further easing of lending restrictions.

Inflation cooled to 4.6 percent in September, the slowest pace since June 2007, on easing commodity prices.

The CSI 300 Index of stocks fell 0.3 percent as of the 11:30 a.m. trading break in Shanghai. The yuan traded at 6.8295 against the dollar as of 11:44 a.m. from 6.8296 before the data was released.

Spreading Crisis

The economists' median estimate was for a 9.7 percent expansion. Growth is slowing across Asia, where Japan's economy shrank in the second quarter and Singapore has tumbled into a recession.

Financial market turmoil and a global slowdown “have started to have a negative impact on China's economy,'' Li Xiaochao, a statistics bureau spokesman, said at a briefing. “The subprime crisis that broke out last year in the U.S. is still spreading and deepening and has caused a global financial crisis.''

China's economic expansion was the weakest since the second quarter of 2003, when growth slumped because of the severe acute respiratory syndrome, or SARS, epidemic.

The contribution of trade to growth halved to 1.2 percentage points in the first nine months from a year earlier, the statistics bureau said. Export growth may slow “substantially,'' Li said.

Investment, Output

Urban fixed-asset investment climbed 27.6 percent in the first nine months from a year earlier, after a 27.4 percent increase through August, today's data showed.

Industrial production rose 11.4 percent in September, the slowest pace in more than six years excluding seasonal distortions, on weaker export orders and factory closures for the Olympic Games.

Retail sales rose 23.2 percent last month from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.

Urban disposable incomes for the first nine months rose 14.7 percent to 11,865 yuan ($1,737) from a year earlier. Rural cash incomes climbed 19.6 percent to 3,971 yuan. Those numbers were boosted by inflation.

The State Council yesterday cited slower growth in fiscal revenue and company profits and “volatility and sluggishness'' in stocks as signs of the effects of the global crisis no qualifying payday advance.

Demand for Steel

Rio Tinto Group, the world's second-largest aluminum producer, last week flagged “significantly weaker'' demand for the metal in China. Prices for Chinese imports of iron ore also fell to a 19-month low on cooling demand from steelmakers.

About half of China's toymakers have shut down this year, with 7,000 workers losing their jobs in factory closures this month by Smart Union Group Holdings Ltd. in Guangdong province, state media say.

Export growth may plummet from 22 percent in the first nine months of this year to “zero or even negative growth'' in 2009, according to Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.

The central bank has stalled gains by the yuan against the dollar since mid-July, protecting jobs in export industries.

Weakness in the property market is also a threat. Home sales by volume plunged 55.5 percent and 38.5 percent in Beijing and Shanghai in the first eight months from a year earlier, the official Xinhua News Agency reported, citing the China Real Estate Association.

The State Council said yesterday that it would increase the supply of low-cost housing and reduce property transaction fees.

Slumping Stocks

The CSI 300 Index of stocks has fallen 66 percent this year.

“The panic in the stock market has spread to the property market,'' said Sherman Chan, a Sydney-based economist at Moody's Economy.com. “Declines in asset prices make people feel less wealthy and they will cut back on consumption and then investment growth will slow.''

A fiscal surplus and a world record $1.9 trillion of currency reserves allow the government to step up spending.

The International Monetary Fund estimated this month that China's economy may expand 9.3 percent next year compared with growth of 0.1 percent in the U.S., 0.2 percent in the euro area, and 0.5 percent in Japan. China was the biggest contributor to global growth last year, according to the organization.

“In the past China has been successful in responding quite quickly to increase spending, particularly on infrastructure, to offset the decline in export growth,'' Charles Collyns, the IMF's deputy director of research, said Oct. 8.

Easing inflation cleared the way for two interest-rate reductions in a month, the latest on Oct. 8, when the U.S. Federal Reserve and five other central banks also made cuts in an emergency bid to thaw credit markets.

The nation needs “flexible and prudent'' economic policies to promote steady and rapid growth, the statistics bureau's Li said.

Producer prices rose 9.1 percent last month after the 10.1 percent gain in August that was the biggest since 1996.

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Wells Fargo & Co. has emerged victorious in its weeklong tug-of-war with Citigroup Inc. over Wachovia Corp. and will proceed with its $15 billion purchase of the troubled bank.

The Wells-Wachovia combination creates the nation’s third banking powerhouse, with about 10,700 branches and 12,200 ATMs stretching from coast-to-coast. Wells Fargo and its ubiquitous stagecoach will now roll from New York City to Miami in the East, through Texas and into the West with branches from San Diego to Seattle.

The combined company, to be called Wells Fargo and based in San Francisco, will have $1.42 trillion in assets, $787 billion in deposits and 280,000 employees.

Wells Chairman Dick Kovacevich, CEO John Stumpf and their team will have their hands full in the days and weeks ahead, handling triage among Wachovia employees who became increasingly nervous about their futures as Wells and Citigroup fought over the Charlotte bank.

Wells (NYSE: WFC) is expected to avoid layoffs, if possible, in the largest acquisition in the company’s 156-year history. Even in making last year’s in-market, Bay Area acquisition of Greater Bay Bancorp, Wells kept the vast majority of the acquired bank’s employees (direct faxless payday loans).

“We know this has been a time of great uncertainty for Wachovia (NYSE: WB) team members and many of its customers as their company has gone through a very painful and challenging time of unprecedented change in our industry,” Wells Fargo’s Stumpf said. “We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible. An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible.”

Although Wells is acquiring Wachovia, the San Francisco bank is likely to find a few gems at the Charlotte bank to extend into Wells Fargo territory beyond Wachovia’s huge presence in the East. Wells Chairman Dick Kovacevich told analysts about a year ago that Wells Fargo’s customer service in retail banking had room for improvement. Wachovia has consistently won high marks in that department. Wachovia’s Way2Save program is also a candidate for going national under the Wells Fargo banner.

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The European Central Bank on Thursday signaled it might cut interest rates for the first time in five years as credit strains paralyzed money markets.

Interbank lending rates extended their upward march, reflecting tightness in credit markets, while a sharp fall-off in U.S. commercial paper issuance indicated businesses were having an extremely difficult time raising short-term capital.

ECB President Jean-Claude Trichet, speaking after the central bank left rates unchanged, highlighted further risks to the European economy from the credit crunch, suggesting the once inflation-leery official was warming to the idea of bringing rates down from the current 4.25 percent.

Trichet said ECB policy-makers recognized “the extraordinary high level of uncertainty stemming from latest developments” on turbulent financial markets and the credit crunch. “Economic activity in the euro area is weakening with contracting domestic demand and tighter financing conditions,” he said.

“The ECB is adopting a substantially softer tone, which opens the door for a future interest rate cut,” said Howard Archer, chief European economist at Global Insight.

The Wall Street Journal reported that U.S faxless payday advance. Federal Reserve officials are weighing further interest rate cuts, even if Congress approves a $700 billion financial industry bailout, because of a worsening economic outlook.

A rate cut is still far from certain, partly because of inflation worries, the WSJ said in an unsourced report on its website.

The change in the ECB’s tone reflected a rapid deterioration in the global credit situation. The year-long crisis has seen the downfall of such staple corporate names as Lehman Brothers and AIG, and bank failures have become frequent. 

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