BEIJING/LONDON -- Improved manufacturing data from China on Wednesday suggested its downturn may be bottoming out and US employment figures were not quite as bad as forecast, but crisis-hit Russia's sovereign debt rating was cut.
US data showed another steep drop in private sector employment but the rate of job losses slowed in January for the first time since September last year. ADP Employer Services said private employers cut 522,000 jobs in January -- slightly fewer than forecast -- after a revised 659,000 jobs were lost in December.
This marked the first slowdown for four months but analysts were cautious before wider US payrolls data on Friday. "I wouldn't put too much meaning into this report. Overall, aside from the the job losses, consumption all over the world is down. That's troubling," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
Hopes for a recovery in China helped to lift Asian share prices and a parallel report showed the pace of decline in Europe's dominant service sector also slowed.
But the Russian debt rating downgrade sent the euro tumbling against the dollar and the yen, due to fears of a steep economic downturn across much of central and eastern Europe.
Glimmers in China
There are signs that China's economy may improve soon as official purchasing managers' index for January rose to 45.3, up from 41.2 in December and a record low of 38.8 plumbed in November.
Although the sub-50 reading indicated manufacturing was still contracting, Zhang Liqun, a government economist, said the index offered evidence that the economy was "gradually bottoming out".
Mingchun Sun, an economist with Nomura in Hong Kong, went a step further, saying that the worst was already past.
"China's GDP growth will be V-shaped in 2009, with the bottom already being reached in Q4 2008," said Sun in a note.
China's economy grew at 6.8 percent in the fourth quarter, dragging full-year growth to a seven-year low of 9.0 percent.
Central bank chief Zhou Xiaochuan said in remarks published on Wednesday that government pump priming had scored early successes but remained wary with risks of bad loans and an export collapse still clouding the horizon.
"According to economic figures for December, the domestic stimulus policies have achieved initial results," Zhou told the Financial News.
Faced with an abrupt slump, the government unveiled a $585 billion spending plan in November and stepped up efforts to boost demand.
Another sign that Beijing's efforts is bearing fruit came in a report that Chinese banks had answered the government's call and extended a monthly record of 1.2 trillion yuan ($176 billion) in new loans in January.
The global importance of reviving the Chinese economy was underscored when data showed that car sales in China had topped those in the United States in January for the first time.
Europe Nearing the Bottom?
Data from the developed world has remained mostly gloomy -- Wednesday's figures showed euro zone retail sales fell more than expected year-on-year in December and November sales were revised, showing a much deeper drop than before.
But Europe's PMI figures offered a ray of hope. The survey's business expectations index climbed to 46.4 in January from December's near-record low of 42.3, a sign that the worst may be over.
"We are likely to see a significant contraction in GDP in Q1," said Nick Kounis, economist at Fortis. "Still, the pace of contraction should slow relative to Q4, which we think will prove to be the deepest point of the recession."
The euro zone services Purchasing Managers' Index of around 2,000 companies covering banks to cafes rose to 42.2 in January from 42.1 in December. The downturn worsened in Germany and Spain but slowed markedly in France and Italy.
The financial crisis, stemming from a collapse in risky US home loans which devastated the banking sector, has pushed the United States, euro zone, Britain and Japan into recession.
Britain's services sector also slid less sharply than expected last month. Its services PMI posted the highest reading since September, when Lehman Brothers collapsed.
Corporate evidence was less encouraging. Japan's Panasonic Corp, the world's No.1 plasma TV maker, warned it would post an annual loss of $4.2 billion and said it would cut about 15,000 jobs as it grapples with a stronger yen and slowing demand.
Earnings withered at Munich Re in the final three months of last year as the financial crisis intensified but the world's biggest reinsurer forecast improving prices in 2009.
Global economic woes are hurting even wealthy Norway. Its central bank cut its main interest rate by half a percentage point to 2.5 percent on Wednesday.
Increasing Concerns over Russia
Russia has been as hard hit as most with foreign capital fleeing its shores. Ratings agency Fitch downgraded Russia's sovereign debt rating to 'BBB' and said further cuts were possible.
"The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt," said Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team.
The agency also said it was concerned by the depletion of Russia's reserves, which have shrunk by a third, or around $200 billion, since August as Moscow sought to control a slide in the rouble and compensate for record capital outflows.
The cut brought Fitch in line with rival Standard and Poor's, which cut Russia to two notches above a "junk" rating in December. But analysts were worried about the wider region.
"Increasing concerns over Russia and central Europe must be watched very closely. A slowdown in that region has negative implications for European banks," said Ian Stannard of BNP Paribas.
Some western European banks have lent heavily into the region and Russia had been a big buyer of euro zone exports when oil prices were high.