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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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A gauge of the economy’s future performance posted its biggest annual drop since 1991 in November as the declines in housing and job markets accelerated, showing little sign the U.S. contraction will ease in early 2009.

The Conference Board’s index of leading indicators dropped 0.4 percent from October, and 3.7 percent from a year before. Other reports showed first-time claims for unemployment benefits held close to a 26-year high and manufacturing in the Philadelphia region contracted for the 11th time this year.

The drop in the leading index underscores economists’ projections that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge and job losses mount. President-elect Barack Obama reiterated today that his top priority is a stimulus plan that spurs demand and creates new jobs.

“There is no end to the recession in sight,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the decline in the leading index. “The economy is likely to continue to fall hard.”

Treasury securities maintained gains following the reports as concern over the deepening economic slump persuaded investors to accept almost record-low yields to safeguard their money. Yields on benchmark 10-year notes fell to 2.10 percent at 1:03 p.m. in New York. The dollar slid 0.9 percent to $1.4289 per euro. The Standard & Poor’s 500 Stock Index was little changed.

Jobless Claims

The number of Americans filing first-time applications for unemployment benefits dropped by 21,000 to 554,000 in the week that ended Dec. 13, from a 26-year high of 575,000 the prior week, the Labor Department said today.

“This is exactly the stage of the recession where businesses are aggressively cutting employment,” Mickey Levy, chief economist at Bank of America Corp. in New York, said in a Bloomberg Television interview. “I expect the pace of layoffs to continue.”

The Philadelphia Federal Reserve Bank’s manufacturing index registered a reading of minus 32.9 this month, higher than anticipated, compared with minus 39.3 in November. Negative readings signal contraction.

Economists projected the leading index would drop 0.4 percent, according to the median of 55 forecasts in a Bloomberg News survey. The measure has fallen in five of the past seven months.

Six of the 10 leading indicators subtracted from the index, led by a slump in building permits, plunging stock prices and increasing jobless claims.

Housing Rout

The drop in building permits to a record low last month subtracted almost a half point from the leading index.

The other negative categories included a decline in the factory work week, a drop in consumer expectations and shorter supplier delivery times that indicate a drop in orders.

A surge in the money supply adjusted for inflation, which has the biggest weighting in the index, prevented the gauge from falling even more cheap pay day loans. The measure added 0.6 percentage point.

The economy entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg this month forecast continued contraction in the first half of 2009, making this the longest slump since the end of World War II.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, fell 0.3 percent, after increasing 0.3 percent the prior month. The index tracks payrolls, incomes, sales and production, the figures used by the NBER to determine the start of recessions.

2007 Peak

The coincident index peaked in October 2007, two months ahead of the start of the downturn.

Obama may ask Congress next year to approve a stimulus plan of around $850 billion, according to a transition adviser. The amount would exceed initial estimates by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, as well as surpassing what some economists and the International Monetary Fund say is required.

Fed policy makers on Dec. 16 said they will target a federal funds rate of between zero and 0.25 percent and buy unlimited quantities of debt as the next step in combating the recession.

“The outlook for economic activity has weakened further,” the Fed said in a statement. The central bank said it “will employ all available tools” to revive growth and preserve price stability.

AutoNation Pain

Mike Jackson, chief executive officer of AutoNation Inc., the largest publicly traded U.S. car retailer, said sales have declined “practically to a standstill” because lenders are retrenching.

“The credit is simply not there from the financial institutions to finance those customers: they’re turning away very good customers,” Jackson said in a Bloomberg Radio interview on Dec. 4.

The Conference Board’s gauge of lagging indicators rose 0.1 percent after no change in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

The end of the recession won’t be signaled until the leading index and the ratio of coincident-to-lagging indicators turns positive for at least three months in a row, said Conference Board economist Ken Goldstein in an interview yesterday.

Still, “that would only mean the recession was losing steam, not that we were off and running,” Goldstein said, adding the data is unlikely to turn positive any “earlier” than the third quarter of next year.

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The Federal Reserve opened a new era in U.S. monetary history, cutting interest rates to as low as zero and pledging to buy unlimited quantities of securities, after conventional policies failed to arrest what may be the worst recession since World War II.

The new strategy is likely to involve unusually close cooperation with the Treasury of President-elect Barack Obama, which is still formulating its economic-rescue plans. The aim is to kick-start borrowing and spending to propel the economy toward a recovery by the middle of next year.

“It’s going to take a combination of fiscal and monetary stimulus to get the job done,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. The central bank has signaled it will “make sure that the fiscal stimulus package, which is going to be a big one, is fully supported” and “in effect financed by the Fed.”

Possible steps by the Fed in coming months include financing for a new package to shore up the housing industry, and expanding a $200 billion program to undergird credit card and student loans. The new plan is risky: market pricing could be distorted for months or years, with insolvent borrowers kept afloat as central bankers force yields below levels investors deem appropriate given the risks.

The Fed’s Open-Market Committee yesterday said it will use “all available tools” to generate a resumption in growth. The FOMC also effectively retired its benchmark interest rate, bringing the target for overnight loans between banks down to zero to 0.25 percent from 1 percent previously.

Investors React

Stocks surged as the clarity of the Fed’s commitment exceeded some investors’ forecasts. Treasuries jumped in anticipation of Fed purchases, and mortgage bonds rallied. The Standard & Poor’s 500 Stock Index rose 5.1 percent to a five- week high. Benchmark 10-year note yields fell more than a quarter point, to 2.26 percent.

Among new ideas the Fed is open to is buying lower-rated securities, with backing from the Treasury, a senior Fed official told reporters yesterday in Washington. Central bankers plan to discuss possible strategies with Obama’s Treasury, the person said.

Obama’s pick for Treasury secretary is Timothy Geithner, the president of the New York Fed, who has been Bernanke’s closest adviser on the emergency lending programs that the central bank has already introduced during the 16-month financial crisis.

Obama Meeting

Obama met with Geithner, former Treasury Secretary Lawrence Summers and other members of his economic team yesterday in Chicago as he assembles plans for a two-year fiscal stimulus package after he takes office Jan. 20. Among his other priorities is a new, comprehensive effort to use taxpayer funds to stem record mortgage foreclosures.

“We are running out of the traditional ammunition that is used in a recession,” Obama said at a news conference yesterday. While the Fed is going to have “more tools available to it, it is critical that the other branches of government step up,” he said payday loans for bad credit.

The Fed said yesterday it may expand its $600 billion initiative to buy debt issued or backed by government-chartered mortgage-finance companies. It is also “evaluating” purchases of longer-term Treasury securities.

“The only meaningful limitation right now is their capacity to be creative,” said David Resler, chief economist at Nomura Securities International Inc., New York. “The Fed is telling us there is just about nothing off the table.”

Other existing programs include an unlimited effort to buy commercial paper from companies and financial firms and a backstop for money-market mutual funds.

Targeted Strategy

The central bank can make a difference in credit markets where yields are higher than they would otherwise be because of a lack of liquidity due to the financial crisis, the senior Fed official said. Still, inserting the Fed as a main purchaser in those markets raises the danger of delaying a recovery in private lending, some observers said.

“The availability of Fed credit might deter private credit,” said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington and former director of the Division of Monetary Affairs at the Fed Board. “The lender of last resort becomes the lender of only resort.”

The composition and size of the balance sheet will be the Fed’s new policy focus, the senior central bank official said in a conference call. Unlike Japan’s quantitative easing policies earlier this decade, the Fed is targeting specific assets for purchase to lower credit spreads rather than expanding the amount of cash in the banking system, the senior official said.

‘American Style’

“Quantitative easing American style is what they’re giving us,” said Allen Sinai, chief global economist at Decision Economics Inc., New York. “The Japanese style was to buy government maturities. The U.S. style is directly buying agency securities, buying mortgage-backed securities and lending money right into the private sector.”

The central bank is also considering whether to provide more information about the composition and targeted size of its balance sheet, the senior Fed official said on condition of anonymity.

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The deepening economic slump pushed unemployment to 6.7 percent last month, the highest level since 1993, while builders broke ground on the fewest new homes since record-keeping began in 1947.

Consumer prices fell the most on record in November, the Labor Department said Tuesday. Fed officials don’t see an immediate risk of a collapse in prices, or deflation, the senior official said.

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Sentiment among Japan’s largest manufacturers fell the most in 34 years, signaling companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession.

An index that measures confidence among large makers of cars and electronics dropped to minus 24 from minus 3, the Bank of Japan’s quarterly Tankan survey showed today. A negative number means pessimists outnumber optimists.

The yen’s surge to a 13-year high last week has compounded woes for Japanese manufacturers who are already reeling from a collapse in export markets. Job cuts by companies including Sony Corp. and Toyota Motor Corp. have brought the recession home to households and increased the risk of a prolonged slump.

“The overseas situation is worsening so quickly and so dramatically; it’s really getting dangerous,” said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo. “The next few months are going to be a very severe period.”

The drop in confidence, which was in line with economists’ expectations, didn’t dissuade investors from buying stocks on speculation U.S. authorities will help General Motors Corp. and Chrysler LLC avoid bankruptcy. The Nikkei 225 Stock Average climbed 4.7 percent in morning trading in Tokyo. The gauge is down 44 percent this year.

Bank of Japan Governor Masaaki Shirakawa and his colleagues will discuss the Tankan result at a policy meeting ending Dec. 19. The board will probably keep its benchmark interest rate at 0.3 percent at the gathering, according to all 11 economists surveyed by Bloomberg News.

Rate Cut ‘Option’

The bank lowered the rate for the first time in seven years in October, and another cut at some point “is an option,” former Deputy Governor Toshiro Muto said in an interview on Dec. 11. Still, he added, “with the interest rate already so low, a further reduction would have only a limited impact.”

The 21-point decline in the large-manufacturer index was the biggest since February 1975. In the current survey’s 34-year history, only a 26-point drop during the first oil shock in August 1974 was larger.

Sentiment among large non-manufacturers fell to minus 9 from 1, entering negative territory for the first time in five years, the central bank said. Large companies said they plan to cut spending 0.2 percent in the year ending March.

“The global financial crisis has caused serious damage to exporters but the repercussion effects are spreading,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.

Gloomy Automakers

Sentiment among automakers plunged to minus 41 from 5, the steepest drop ever. Japanese carmakers have been hardest hit by the recession in the U.S., where consumer credit is drying up and household confidence is close to a record low advance payday loans.

Toyota, which forecasts profit will fall 74 percent this fiscal year, last month said it will halve its temporary work force to 3,000 employees. The company is considering production and investment cuts in India, Brazil, China and the U.S.

The yen’s 17 percent gain against the dollar since September has lowered the value of overseas sales and undermined the competitiveness of Japanese cars, cameras and televisions.

Japan’s currency traded at 90.95 per dollar from 90.68 before the Tankan was published and 88.53 on Dec. 12, the strongest since August 1995. Large manufacturers expect the yen to trade at 103.32 in the year ending March, the survey showed.

The world’s second-largest economy shrank in each of the past two quarters, entering the first recession since 2001. Companies will keep trimming production and payrolls in coming months, prolonging the downturn, said Bank of America’s Fujii.

Too Many Workers

“The recession is likely to persist through the first half of next year,” Fujii said. “We have tighter lending conditions, excess capacity, excess labor — these all point to downside risks in the pipeline.”

The capacity index for large manufacturers climbed to 11 points from 2, the highest since March 2004. A measure of labor demand rose to a four-year high of 8 from minus 2, the first time companies said they had too many workers since 2005.

Sony last week said it would fire 16,000 employees worldwide, including 8,000 full-time staff. Canon Inc., Sharp Corp. and Nissan Motor Co. eliminated temporary and part-time positions over the past month, pushing consumer sentiment to a record low and stoking anxiety among voters.

Prime Minister Taro Aso, facing tumbling approval ratings, last week announced his second economic stimulus package since becoming leader in September. Aso still hasn’t submitted a bill to parliament to fund measures announced in October.

LDP Rift

The ruling Liberal Democratic Party may split apart before elections required by September 2009 because lawmakers don’t believe victory is possible under Aso, independent lower-house member Kenji Eda said last week.

Big companies expect business to get worse in coming months. Large manufacturers see their index falling to minus 36 in the next survey in April, and service companies expect a drop to minus 14 points.

Some economists downplayed the result.

“These forward-looking indicators have a rather poor track record when it comes to predictions,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “It could have been a whole lot worse.”

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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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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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Wall Street’s Friday sell-off was not as bad as some had feared, with the Dow Jones Industrial Average working off a good part of its 500 point morning loss.

By the closing bell, the Dow was still down 312 points, a 3.6 percent Friday loss, closing at 8379. For the week, the Dow fell 5.4 percent. The S&P500 Index lost 7 percent in weeklong trading, while the Nasdaq Composite Index fell 9 percent this week.

Friday’s selloff followed even steeper one day losses for major markets in Asia and in Europe free credit report without a credit card. In London, the FTSE100 Index fell 5 percent Friday. Tokyo’s Nikkei 225 fell 9.6 percent Friday.

The S&P500 Index is now down just over 40 percent this year.

Commodity prices also continued to fall, with crude oil futures in New York dropping below $65 a barrel.

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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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Houston-based Waste Management Inc. on Monday withdrew its $6.73 billion bid to take over Florida trash hauler Republic Services Inc., paving the way for its planned merger with Allied Waste Industries of Phoenix.

Waste Management (NYSE:WMI) officials pointed to the current state of the financial markets in its decision.

"We believe that it would not be prudent to continue to pursue the acquisition of Republic," Waste Management CEO David Steiner said in a news release approved payday advance in seconds.

Republic (NYSE:RSG) reached a $6.2 billion takeover deal for rival Allied Waste (NYSE:AW) in June with the headquarters to be located in Phoenix.

Republic shares closed up $2 on Monday to end the day at $24.50. The 52-week high was $36.52 on Sept. 19. The 52-week low was $19.99 Oct. 10.

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Japanese Finance Minister Shoichi Nakagawa said the government may inject public money should the global credit turmoil threaten the nation's financial institutions.

“Japan started considering public fund injections just in case something happens,'' Nakagawa said in a joint briefing with Bank of Japan Governor Masaaki Shirakawa after the two met with Group of Seven counterparts in Washington today.

The global credit crisis wiped out more than $670 billion in market value from the Tokyo Stock Exchange's first section this week, depleting corporate capital and raising concern that Japan's financial institutions aren't immune from collapse. Yamato Life Insurance Co. yesterday became the first Japanese insurer in seven years to file for bankruptcy, citing a decline in the value of its securities holdings.

Nakagawa made the remarks after the G-7 issued a statement saying the member nations will “use all available tools'' to prevent the failure of financial institutions and ensure they can “raise capital from public as well as private sources.''

Nakagawa, also financial services minister, said yesterday he may revive a law that allows the government to pump public funds into regional lenders. The legislation expired in March.

Damage Limited

He and Shirakawa said the effect of the global financial crisis on Japan has been limited relative to the U.S. and Europe, where banks are shunning lending to each other for fear they will lose the money or because they need it themselves.

Japanese banks have largely recovered from the malaise of the 1990s, when the collapse of stock- and property-market bubbles left lenders with trillions of yen in bad loans. Economic and Fiscal Policy Minister Kaoru Yosano said yesterday that the banking sector hasn't weakened to the point where the law needs to be revived.

“Banks aren't in such bad shape that they require public- fund injections at this point,'' Yosano said, hours after Yamato announced it would file for bankruptcy.

Japan poured 12.4 trillion yen ($123 billion) into the nation's banks between 1998 and 2003, forcing mergers that cut the number of nationwide lenders to seven from more than 20. More than 9 trillion yen has already been repaid with the government generating a return in excess of 10 percent.

Nakagawa said he told the meeting that Japan is ready to contribute money to the International Monetary Fund's emergency lending program to help countries that could face financial difficulties as a result of the crisis.

Currency Moves

He also said the G-7 officials discussed the recent sharp movements in currencies at the meeting.

“We shared the view that excessive, disorderly movements in currencies aren't good,'' he said.

The yen posted its biggest weekly gain in a decade against the dollar as the global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan. Japan's currency surged 10.8 percent against the euro and 5.4 percent versus the dollar this month, eroding exporters' repatriated profits and making their products less competitive.

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