BEIJING (AFP) — East Asian leaders agreed Friday to set up an 80-billion-dollar fund by mid-2009 to fight the global economic crisis, as Japanese shares again fell sharply after a profit warning from technology giant Sony.
The agreement came hours after US officials warned of a rise in unemployment stemming from the credit crisis, while France unveiled plans for a sovereign wealth fund to protect key industries from turmoil, as debate raged over the cause of the global maelstrom.
Leaders of South Korea, China, Japan and the 10 members of the Association of Southeast Asian Nations (ASEAN) reached their agreement at a breakfast meeting in Beijing, said the spokesman for South Korean President Lee Myung-Bak.
"The East Asian leaders agreed to accelerate multilateral cooperation to create an 80 billion dollar fund by the end of next year's first half and establish an independent regional financial market surveillance organisation," the spokesman said in a statement.
The deal, he said, was meant to "strengthen regional cooperation and policy coordination in the face of the global financial crisis."
The "ASEAN Plus Three" fund would supersede the Chiang Mai Initiative, which came into being in 2000 in the wake of the 1997/98 East Asian financial crisis to ease mainly bilateral currency swaps.
Meanwhile in Washington, the White House braced the US public for a sharp rise in layoffs and unemployment stemming from the global economic crisis, amid fresh warnings of a painful and lasting recession.
Spokeswoman Dana Perino said former Federal Reserve chief Alan Greenspan was right to warn, in testimony to a US congressional panel, of what he called "a significant rise in layoffs and unemployment."
"We're in for a rocky road on the employment front," Perino told reporters.
Greenspan, who ended his 18-year stint as chairman of the US Federal Reserve before a years-long housing bubble burst, warned that a "once-in-a-century credit tsunami" would pummel consumer spending and jobs.
In France, President Nicolas Sarkozy announced the creation of a 100-billion-euro (128-billion-dollar) sovereign wealth fund to protect strategic sectors of the economy from the global financial storm.
Declaring that the recent turmoil had killed off the "dictatorship of the market," Sarkozy vowed to lead Europe towards a model in which the state will take a more active role in industry and protect firms from foreign takeover.
"A better world will emerge from this crisis than the one we had before," he said, adding that the fund would "intervene massively" in order to protect any strategically important French firms.
"What oil producers do, what China does, what Russia does, there's no reason that France should not do."
Sarkozy's proposal however did not go down well in Berlin where the German government said any such measures must be compatible with European Union rules.
Stocks markets remained volatile. In New York, the Dow Jones Industrial Average rose 172.04 points (2.02 percent) Thursday to end at 8,691.25 after swings in both directions and following a 514-point tumble on Wednesday.
The tech-dominated Nasdaq composite however closed down 0.73 percent while the broad-market Standard & Poor's 500 index rose 1.26 percent.
Asian stocks slid in early trade Friday, led by Tokyo's Nikkei which dropped 5.01 percent in early trade after Sony forecast a substantial drop in profits due to a weaker global economy and a stronger yen.
South Korean shares quickly shed 3.5 percent, with the operator of Seoul's bourse halting trading for five minutes from 10:02 to 10:07 due to the steep fall in the benchmark KOSPI index.
Taiwan share prices opened 2.78 percent lower, while Singapore shares were 2.15 percent down and Hong Kong opened 2.1 percent lower.
In London, the FTSE 100 closed with a gain of 1.16 percent while in Paris the CAC 40 rose 0.38 percent. The Frankfurt Dax pared some of its losses but fell 1.12 percent.
Kevin Giddis, analyst at Morgan Keegan, said a crucial benefit to the market was a drop in key interest rates such as Libor, a benchmark for interbank loans that has been at the center of the credit crisis.
"Mounting evidence suggests that conditions in the short-term credit markets are slowly improving, with Libor continuing to fall," he said.
"It's way too early to know how close we may be to normalcy, but these trends provide some sense of optimism that the great unthawing may finally be near."
Governments around the world have unveiled packages over the last month totaling more than three trillion dollars, including loan guarantees and cash injections, to restore confidence to banks and reverse a drop in lending.
The scale of the decline was illustrated by figures from the Bank for International Settlements, the world's biggest central banking body, which showed cross-border lending by banks fell 1.1 trillion dollars in the second quarter of 2008 -- even before the worst of the latest crisis.
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