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The global auto market will remain depressed next year as U.S. economic woes grip the rest of the world, with Japanese car sales likely to be the worst in at least three decades, the head of an industry lobby said on Thursday.

Desperate U.S. automakers are seeking billions in government aid, shutting down plants and reportedly reconsidering mergers to ride out a collapse in demand brought on by the credit crunch and global financial crisis.

In the latest sign of gloom for Japanese automakers, Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) forecast on Wednesday an operating loss of 190 billion yen ($2.2 billion) for the six-month period to March, sending its shares down 3.5 percent on Thursday. It was the third profit warning in five months for Japan’s No.2 automaker, which like its local rivals, is suffering due to the strong yen .

“It’s very difficult to gauge where the bottom is (for the global car market),” Satoshi Aoki, chairman of the Japan Automobile Manufacturers Association (JAMA) told a news conference.

“What seems clear is that a recovery isn’t around the corner, and I have no idea when we’ll see one,” Aoki, also chairman of Honda, said.

Announcing its outlook for 2009, the industry group said it expects Japanese demand for new cars, trucks and buses, including 660cc minivehicles, to fall 4.9 percent to 4.86 million vehicles, predicting the first drop below 5 million in 31 years.

That would mark the fifth straight year of decline in Japan, the world’s third-largest car market after the United States and China guaranteed pay day loans.

For a graphic on Japanese auto demand, click: here

U.S. WOES

Aoki also predicted the U.S. light vehicle market to fall around 6 percent to 12.5 million units next year, from an estimated 13.3 million in 2008 and down 23 percent from 2007’s 16.2 million.

That would be the lowest level of annual U.S. sales since 1991.

Weak consumer sentiment and tight credit have combined to send U.S. sales down 17 percent so far this year, forcing automakers to scale back production and rein in inventory.

Chrysler LLC is set to idle factories in the United States, Canada and Mexico for one month starting Friday, underscoring the urgency of pleas by Chrysler and General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) for an immediate bailout they say is their best hope for near-term survival.

Desperate to avoid bankruptcy, Chrysler owner Cerberus Capital Management CBS.UL took the initiative to restart talks for a possible merger with GM, the Wall Street Journal reported, citing people familiar with the discussions.

GM and Chrysler could not be reached immediately for comment, but GM CEO Rick Wagoner told the U.S. Senate Banking Committee earlier this month that he would consider a merger with Chrysler if that were the condition for receiving federal funding. 

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Stocks rallied Thursday, as investors cheered news of easier credit and a report showing the economy shrank at a slower pace than expected in the third quarter.

The Dow Jones Industrial average (INDU) gained 190 points, or 2.1%. The Standard & Poor’s 500 (SPX) index rose 2.6% and the Nasdaq composite (COMP) gained 2.5%.

All three major gauges had been higher in the early going, but the buying momentum eased a bit as the session wore on.

Stocks seem to be in the process of putting a bottom in place, said Gary Hager, founder and chief executive of Integrated Wealth Management, citing the recent bear market lows hit on Oct. 10.

Looking forward, he said "We’re still going to see significant swings, but the volatility should start to decrease once we get past the election and get through the end of the year."

Rate cuts: Stocks zigzagged Wednesday after the Federal Reserve cut interest rates, as expected, and also issued a dour assessment of the economy. The central bank cut the fed funds rate, a key bank lending rate, by half a percentage point to 1.0%. That matched an all-time low for the rate last seen in June 2004.

In its statement, the central bank painted a bleak picture of the economy, touching on the lingering impact of the financial market crisis, the lack of available credit, and the erosion in consumer and business spending. The statement indicated the Fed could cut rates again if necessary.

But world markets rallied on the news, with Asian exchanges surging overnight and European markets up at the close. Hong Kong and Taiwan cut interest rates Thursday following the actions by the Fed, and by China earlier Wednesday. Speculation mounted that Japan would cut its key rate at a meeting this Friday.

The Fed has cut rates for more than a year in an attempt to help the struggling economy. The central bank has also made potentially trillions available to financial institutions as part of a broader attempt to calm roiling financial markets and get banks to start lending to each other again.

Lending has been improving slowly. On Thursday, the Fed said that the market for commercial paper grew last week, the first such expansion in nearly two months. Commercial paper is a critical form of short-term funding that companies rely on for their daily operations.

Lending rates: The credit market continued to improve, with Libor, the overnight bank-to-bank lending rate, falling to 0.73% from 1.14% Wednesday, according to Bloomberg.com. The 3-month Libor fell to 3.19% from 3.42% Wednesday. (Full story)

The TED spread, the difference between what banks pay to borrow from each other for three months and what the Treasury pays, narrowed slightly to 2.82% from 2.84% Wednesday. The spread hit a record 4.65% earlier this month. The narrower the spread, the more willing banks are to lend to each other.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, slipped to 0.4% from 0.57% late Wednesday, with investors preferring to take a piddling return on their money than risk the stock market.

Last month, the 3-month yield reached a 68-year low around 0% as investor panic hit its highest level.

Treasury prices slipped, raising the yield on the benchmark 10-year note yield to 3.97% from 3.85% late Wednesday. Treasury prices and yields move in opposite directions.

GDP: Gross domestic product, the broadest measure of the nation’s economy, fell at an annual rate of 0.3% in the third quarter after growing at a 2.8% rate in the second quarter.

The drop was not as bad as expected, with analysts having forecast that GDP would slump 0.5%. However, the decline was still the worst performance for the economy since the last recession 7 years ago. (Full story)

Company news: Exxon Mobil (XOM, Fortune 500), the oil services giant, reported a profit of $14.83 billion, the biggest quarterly profit in U.S. history. Shares rose modestly. (Full story)

But Exxon was an exception. With roughly 59% of the S&P 500 results out, profits are currently on track to have fallen 23.8% versus a year ago, according to the latest data from tracking firm Thomson Reuters.

Hartford Financial Services (HIG, Fortune 500) tumbled 51.6% after the life insurer reported a massive quarterly loss and also cut its full-year profit forecast.

Motorola (MOT, Fortune 500) warned that fourth-quarter profit would miss forecasts and said its troubled cell phone unit will continue to weaken next year. As a result, the company will delay its planned spinoff of that unit freecreditreport. The company will also cut 3,000 jobs as part of a restructuring. Motorola shares fell 5.3%.

Avon Products (AVP, Fortune 500) reported weaker-than-expected quarterly profit and warned that the impact of the recently stronger dollar will hurt fourth-quarter and full-year growth rates. Shares fell 15.4%.

In other company news, American Express (AXP, Fortune 500) announced that it will cut 7,000 jobs, or more than 10% of its staff, amid the ongoing credit crisis.

Dow component GM (GM, Fortune 500) slumped over 10% amid ongoing woes for the company and the auto sector. The governors of six states sent a letter to federal officials asking that they intervene to help the hard-hit domestic automakers. GM and Cerberus, the parent of Chrysler, are in talks about a merger, but need financing.

Also impacting the stock was GMAC, the troubled auto finance and mortgage lending company that’s 49% owned by GM. GMAC said it’s in talks with federal regulators to become a bank holding company, so that it can access government funds. Complicating matters further, Cerberus owns the other 51% of GMAC.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by four to one on volume of 1.38 billion shares. On the Nasdaq, winners beat losers five to two on volume of 2.55 billion shares.

Other markets: The dollar fell against the euro and gained versus the yen.

U.S. light crude oil for December delivery fell $1.54 to settle at $65.96 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $15.50 to settle at $738.50 an ounce.

Gasoline prices fell another 4 cents overnight, to a national average of $2.547 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 43rd consecutive day that prices have decreased. During that time, prices have fallen by $1.31 a gallon, or nearly 34%.

A good week, a brutal month: Stocks have bounced back this week, finding some momentum at the end of a wretched October. For the week, the S&P 500 is up 8.8% as of Thursday’s close.

But at the same time, investors pulled more money out of equity mutual funds than they did in the previous week, according to tracking firm Trim Tabs. The amount of money withdrawn from stock mutual funds in the week ended Oct. 29 rose to 9.2 billion from 6.5 billion the previous week.

Despite the recovery, October will go down in the history books as one of Wall Street’s worst months of all time.

As of Thursday’s close, the Dow had lost 1,670 points, the Dow’s worst month ever, according to Stock Trader’s Almanac info going back to 1901. On a percentage basis, the decline of 15.4% doesn’t rank in the top ten.

The S&P 500 lost nearly 212 points, or 18.2% in the month, and is currently on track to post its worst month ever on a point basis and ninth worst ever on a percentage basis, going back to 1930.

The Nasdaq dropped 384 points, or 18.4% in October, tracking its seventh-worst month ever on a point basis and its sixth-worst month on a percentage basis, going back to its inception in 1971.

October also brought lows that could constitute a market bottom, analysts say. However, bottoming out is a process. In the last bear market, stocks made lows in the summer of 2002, "retested the lows" in October 2002, and then retested them once more in March 2003 before finally making a sustained gain over the next few years.

The major gauges seem have hit a low on Oct. 10, when the Dow dipped below 7,900 and the S&P 500 fell below 840. The Nasdaq initially made a low on that same date, before retesting it a few weeks later and falling below 1,500. Stocks may need to fall back to those lows again before moving higher this time.

Although with the depth of the recession and the ongoing credit crisis, the stock market now is not likely to see an advance comparable to the more than 4-year bull market that followed the last bear market.

"Stocks are building a good base right now," said Will Hepburn, president and chief investment officer at Hepburn Capital Management.

He said that stocks will likely keep moving sideways in the short term, but could be setting up for a multi-month rally six months out as the economy begins to stabilize and banks start lending again.  

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Pressure built on Morgan Stanley on Friday, with investors unconvinced about its deal with Mitsubishi UFJ and two analyst reports citing concerns about the bank’s earnings outlook.

The reports, one by brokerage Ladenburg Thalman, the other by ratings agency Moody’s, come at an extremely delicate time for the bank, with its stock falling 26 percent on Thursday and getting close to single digits.

Mitsubishi UFJ Financial Group, Japan’s largest bank, said it has no plans to pull out of a planned $9 billion investment in Morgan Stanley

Mitsubishi UFJ has said it expects the deal to take a 21 percent stake in Morgan Stanley will close by next week, but that has failed to calm investors.

Shares of Morgan Stanley have lost nearly half their value in the last three days, on concern Mitsubishi UFJ may back out of injecting the much-needed capital faxless payday loan online.

“We have seen this movie before,” Richard Bove, Ladenburg Thalman’s veteran Wall Street analyst said on Friday after cutting Morgan Stanley’s price target. “One must hold one’s breath at the moment and hope that this is a different movie.

Bove said the pressures on the company is “enormous” and that one of the concerns is that Morgan is believed to be counterparty to “numbers” of Lehman Brothers transactions. Lehman Brothers filed for bankruptcy last month.

Separately, Moody’s on Friday warned it might cut the long-term debt ratings of Morgan Stanley and Goldman Sachs, which would increase their cost of borrowing. 

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At 10 p.m. on a Friday last month, it was the usual Mardi Gras at Lumi

The Canadian Auto Workers union is trying to form a committee for a possible organizing drive at WestJet Airlines.

The CAW confirmed yesterday it has received calls from WestJet employees expressing interest in the union, and it is now working on a committee.

"We’re at a very preliminary stage," said union president Ken Lewenza, who took the reins of the CAW on Sept. 4. Lewenza, who ran Local 444 in Windsor for 14 years, succeeded Buzz Hargrove, who was CAW president for 16 years.

Calgary-based WestJet employs about 5,700 and promotes the idea of workers becoming owners of the company no qualifying payday advance.

The CAW wants to become more aggressive in organizing outside the manufacturing sector, where it has lost thousands of members in recent years because of plant closings. The union already represents some 5,000 Air Canada workers.

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Federal Reserve Chairman Ben Bernanke said Friday that the problems in the nation’s financial markets persist and still threaten the economy.

Bernanke said that the financial woes, coupled with record oil prices and the weakening economy, had created "one of the most challenging economic and policy environments in memory."

In prepared remarks at a conference in Jackson Hole, Wyo., Bernanke also said he is encouraged by the recent oil price decline, which may signal that inflationary pressures are on the wane.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided," Bernanke said.

"Its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," he added.

Bernanke’s comments seem to signal that the central bank will keep its key interest rate at 2%, rather than raise it an attempt to keep prices in check.

"The commentary tells me that rates are on hold until they see some blue skies through this financial storm," said John Silvia, chief economist for Wachovia.

The Fed cut interest rates seven times from September through April, but left them unchanged at its last two meetings.

Earlier this summer, investors and economists were widely expecting the Fed to start raising rates as early as this fall. But there is now widespread agreement that rates will remain on hold at its next two meetings in September and October and some economists are predicting rates will stay at current levels into next year.

Silvia said the Fed had little choice but to focus on upheaval in the credit markets rather than on inflation as it cut rates. And while he agreed that financial market woes are not behind us, he said the Fed faces a risk of inflation getting out of hand the longer it keeps rates on hold.

"Inflation is not out of control, but it’s clearly drifting away," he said.

Bernanke’s remarks come more than a week after the Consumer Price Index, the government’s key inflation measure, rose to a 17-year high, gaining 5.6% over the previous 12 months. The Producer Price Index, a measure of wholesale inflation, also rose this week to a 27-year high.

Still, Bernanke reiterated that the Fed expects an economic slowdown to cause "inflation to moderate later this year and next year." And while he added that the "inflation outlook remains highly uncertain," Bernanke appeared to downplay inflation risks relative to other challenges facing the economy and global credit markets.

The discussion of inflation pressure was only a brief part of the speech, which focused on the need for stability in financial markets absolutely free credit report. Bernanke defended actions by the Fed over the past year. And he said that the Fed and regulators needed to be on the lookout for other threats to financial markets.

Bernanke offered one of the most detailed and strongest public defenses of the Fed’s role in preventing a bankruptcy at Bear Stearns in March. He argued that while Bear Stearns was not that large in comparison to other Wall Street firms, its failure would have had severe ripples throughout the financial system that the Fed could not risk.

"With financial conditions already quite fragile, the sudden, unanticipated failure of Bear Stearns would have led to a sharp unwinding of positions in those markets that could have severely shaken the confidence of market participants," he said. "The broader economy could hardly have remained immune from such severe financial disruptions."

His speech did not make any reference to Fannie Mae (FNM, Fortune 500) or Freddie Mac (FRE, Fortune 500), the two troubled mortgage finance firms who have seen their shares battered this month on fears that the government will be forced to take them over.

But his defense of the Bear Stearns action and his discussion of a doctrine of rescuing firms deemed too big to fail seemed to signal his approval of the Treasury Department taking action if either firm were to face problems covering rising losses from the trillions in mortgages they own or guarantee.

In another comment that could be read as addressing the problems facing Fannie and Freddie, he said that regulators of financial institutions had to be careful not to force troubled firms to cut back on their lending at times of economic stress.

He said mandating tighter lending standards might help the "safety and soundness of a particular institution" that such "excessively conservative lending policies could prove counterproductive if they contribute to a weaker economic and credit environment."

He also said that it is important that Congress take steps to spell out more explicitly what steps could be taken by the government to help rescue other financial institutions whose failure would pose a risk to the broader economy. He said that the Treasury Department is probably the agency best suited to perform those rescues. 

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Eddy Hartenstein, a former head of DirecTV, will become publisher of the Los Angeles Times, the newspaper reported Saturday.

Hartenstein, a pioneering satellite television executive with no newspaper experience, will take over Monday. His job will be to invigorate a newspaper that has cut back hundreds of jobs as it struggles with plunging circulation and ad revenue in the Internet age.

Hartenstein will be the fourth Times publisher since the newspaper was acquired in 2000 by the Chicago-based Tribune Co. The post has been vacant since David Hiller resigned July 14, the same day that Tribune began implementing more staff cutbacks.

Hartenstein, 57, said he was approached for the job about a month ago by Tribune chief Sam Zell, who did not demand any more cuts.

"I wanted to know that I would have the ability . . . to call the shots," Hartenstein said Friday.

Zell "basically said ‘You’re the publisher and CEO. It’s yours to run,"’ Hartenstein said.

Hartenstein, a Caltech-educated engineer, is considered one of the founding fathers of satellite television faxless online payday advances. He was working for Hughes Electronics Corp., which was later acquired by General Motors Corp (GM, Fortune 500)., when he began considering the use of satellites to deliver TV programming.

In the 1990s, he persuaded GM to finance a venture that would become DirecTV Group Inc. He became the company’s president and was chairman and CEO from 2001 to 2004.

DirecTV (DTV, Fortune 500) introduced small satellite dishes that could be mounted on practically any roof, wall or balcony, in comparison to the large backyard dishes then in general use by satellite TV subscribers.

Hartenstein went on to serve on the boards of SanDisk Corp., XM Satellite Radio Holdings Inc., Broadcom Corp. and the City of Hope hospital in Duarte.

He was inducted into the Broadcasting and Cable Hall of Fame in 2002 and received an Emmy Award for lifetime achievement from the National Academy of Television Arts and Sciences in 2007. 

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Oil traders have long been accustomed to reading the tea leaves for clues to the true state of fuel consumption in China, but even the savviest analysts are being tested this year by a befuddling mix of signals.

An unexpected second month of weak crude oil imports reported on Monday gave fresh vigor to the bears, who read it as a signal that refiners had overestimated demand; bulls are still enraptured by surging diesel and gasoline imports, which they say may continue as industries resume operations after the Olympics.

Both could be wrong.

With major new refiners being started toward the end of this year, China’s crude oil import growth should accelerate but its massive products stockpiling will slow, cutting fuel imports.

Between the rapidly shifting trade flows and the lack of transparency around inventory levels, which were built up substantially ahead of the Olympic games this month, traders will be hard pressed to determine whether a U.S.-spawned economic slowdown is finally taking the wind out of China’s sails.

That’s a key question for oil markets that have risen sixfold in as many years, driven in large part by burgeoning Asian demand.

Some closest to the pump say the day has already arrived, nearly two months after Beijing surprised the nation with a near 18 percent rise in subsidized gasoline and diesel prices.

“Demand is definitely coming off after the price hike bad credit payday loans. Among the worst hit is the transportation sector, which had been operating on razor-thin margins even before the increase,” said Qi Fang, a long-time independent dealer who owns a dozen petrol stations in Hebei province, near Beijing. 

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Consumer spending probably slowed in June as the boost from tax rebates waned, signaling near-record gasoline prices and a weakening labor market hurt households, economists said before a report today.

The 0.4 percent increase followed a 0.8 percent rise in May, according to the median forecast of 67 economists surveyed by Bloomberg News. The report may also show inflation accelerated.

The tax rebates from the government's stimulus plan will provide only a temporary boost for Americans in the face of $4-a- gallon gasoline, tumbling home prices and mounting job losses. The Federal Reserve is projected to hold interest rates unchanged tomorrow as prices rise and the economy slows.

“Consumer spending still has tremendous headwinds and it will no longer be fueled by the tax rebates,'' said Bill Hampel, chief economist at the Credit Union National Association in Washington. “Consumer spending will be weak at least through the middle of next year.''

The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from 0.5 percent drop to a gain of 0.9 percent.

Separately, the Commerce Department may report that factory orders rose 0.7 percent in June compared with a 0.6 percent gain the prior month, according to economists surveyed by Bloomberg. Commerce will release its report at 10 a.m.

The tone of spending today's report will hinge on whether the jump in prices accounted for much of the expected increase in purchases, economists said.

Incomes Fall

Incomes likely fell 0.2 percent in June after a 1.9 percent gain the prior month, when most of the tax rebates were delivered. About $28 billion went out in June, compared with about $50 billion in late April and May, according to Treasury Department figures.

The Fed's preferred price gauge, known as the core measure because it excludes food and fuel, probably rose 0.2 percent last month after a 0.1 percent May gain, the median forecast showed http://paydayintime.com.

Core prices in the 12 months ended in June probably climbed 2.2 percent, the biggest year-over-year increase since December, according to the survey median.

Investors are betting the Fed will hold the benchmark rate unchanged at 2 percent tomorrow, according to federal funds futures contracts. Fed Chairman Ben S. Bernanke on July 15 told lawmakers that the economy faced threats to both growth and inflation.

There are “significant downside risks to the outlook for growth'' and “upside risks to the inflation outlook have intensified,'' he told the Senate Banking Committee in Washington.

Spending to Slow

Most economists are forecasting the lift from the rebates will fade in the second half of the year. Retail sales rose 0.1 percent in June, less than forecast, indicating consumers may already have started to retrench. Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed.

Economists surveyed by Bloomberg in the first week of July forecast economic growth would slow to a 1.4 percent annual pace in the third quarter and to 0.5 percent in the fourth quarter.

The economy shrank at a 0.2 percent rate in the last three months of 2007 and grew at about an average 1.5 percent pace in the first six months of 2008, government data last week showed.

With the economy teetering on the brink of a recession, consumers are focusing their purchases on staples while cutting back on luxuries like $4 lattes, causing sales to slump at Starbucks Corp. the world's largest chain of coffee shops.

Starbucks Corp. last week said it will close more U.S. stores than it will open next year after it posted its first loss in 16 years as a public company.

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Japanese government plans to fill a vacancy on the Bank of Japan’s rate-setting policy board were thrown into disarray on Tuesday when a nominee’s name was leaked, prompting opposition lawmakers to reject him.

Japanese media said hawkish economics professor Kazuhito Ikeo was the government’s choice for one of two vacancies on the central bank’s nine-member board, which had been due to go to a parliamentary panel on Tuesday morning.

A split parliament has forced the government to spend months battling to get BOJ nominees approved in the midst of the credit crisis, with the opposition so far rejecting five candidates for various positions at the central bank.

BOJ governor Masaaki Shirakawa only won the job last month as third choice after a three-week vacancy at the top of the BOJ.

A senior opposition lawmaker, Takeo Nishioka, told reporters that parliament’s upper house, which the opposition parties control and which must approve senior BOJ appointments, would reject Ikeo because of the leak easy payday loans.

“The government leaked the information, so we cannot accept the nomination unless the candidate is replaced with someone else,” Nishioka said, after the opposition refused to attend a parliamentary panel due to consider the BOJ nomination.

SIDESHOW IN UNCERTAIN TIMES

For markets, the ongoing political saga is a sideshow but the row comes amid a repeated warnings from Shirakawa of highly uncertain times that have led the BOJ to end its bias towards raising rates. 

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