My finance view

U.S. consumer confidence plunged to a record low in October amid signs the economy is sliding into a deep recession, threatening to pull the rest of the world along with it.

Investors expect the United States to slash interest rates on Wednesday, with Europe and Britain likely to follow next week, as policy-makers in the world’s major economies fight to head off a prolonged slump.

The Nikkei business daily said the Bank of Japan was also considering a 25 basis-point interest rate cut to underpin the economy, pushing the dollar and the euro up against the yen.

Iceland hiked interest rates massively in a desperate attempt to defend its currency from the global turmoil. The move will help secure aid from the International Monetary Fund, which is also crafting plans for Hungary and Ukraine as the crisis sweeps developing economies.

The Bank of England said financial markets appeared to have priced in losses of $2.8 trillion from the credit crisis, equal to more than two years of U.S. corporate profits, but the BoE said actual losses may be much less than that.

A Federal Reserve cut will be too late to save depressed U.S. consumer confidence, which plunged in October to the lowest in the 40-year history of the Conference Board survey. Companies slashed jobs and retirement savings evaporated during the month, which is on track to be the worst for Wall Street in more than 60 years.

“Consumers are completely shut down at this point,” said Lindsey Piegza, a market analyst at FTN Financial. “They see no end in sight even with all the actions that the government has taken one hour cash.”

ECONOMY DOMINATES U.S. ELECTION

The economy dominates the U.S. presidential election which takes place November 4. Republican presidential nominee John McCain and Democratic candidate Barack Obama traded attacks on each other’s tax plans on Tuesday.

Polls show voters trust Obama more on the economy and he leads in national surveys and important swing states.

The current crisis has its origins in the bursting of the U.S. housing bubble and data showed prices of U.S. single-family homes continue to plummet, falling a record 16.6 percent in August from a year earlier.

Whirlpool Corp, the world’s biggest appliance maker, said it will cut 5,000 jobs, adding to the gloom. It posted lower than expected quarterly profit and slashed its 2008 earnings outlook.

The world’s biggest mutual fund company, Fidelity Investments, said it was reviewing its costs and staffing following an industry report that said as many as 4,000 jobs, 9 percent of its workforce, could be cut.

There were some hopeful signs, including a drop in closely watched rates on loans between banks, showing efforts by central banks to lower borrowing costs were making progress. However, a further reduction was needed to restore the financial system to normal functioning.

Global stocks rallied back from five-year lows, with Wall Street rising more than 5 percent. 

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