A tentative rebound in global stocks spluttered on Wednesday while euro zone government bond yields hit a three-year low as gloomy economic news highlighted the case for more aggressive interest rate cuts in Europe this week.

The euro stayed on the backfoot and oil held near a 3-1/2 year low a day before the European Central Bank, Bank of England and Sweden’s Riksbank are all widely expected to cut borrowing costs.

Supporting those expectations, economic reports on Wednesday showed the euro zone’s services economy fell deeper into recession in November than initially thought and inflationary pressures eased.

“This is a horrible survey across the board, showing that the euro zone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets,” said Howard Archer, economist at IHS Global Insight.

Australia’s economy grew at its slowest pace in eight years in the third quarter as gathering recession abroad and evaporating equity wealth at home curbed spending by consumers and businesses.

Central banks worldwide are cutting rates to fight recession. They are also considering more measures to stabilise financial markets and restore battered consumer and investor confidence, including help for struggling U.S. auto makers.

The FTSEurofirst 300 index of top European shares fell 1.5 percent in early trade with Britain’s FTSE 100 index down 0.9 percent and Germany’s DAX  shedding 1.7 percent.

MSCI world equity index eased 0.4 percent.

“The markets are still looking very tender,” said Justin Urquhart Stewart, investment director at Seven Investment Management.

“Markets are not focusing on any of the good news and the good news is rates are being cut, commodity pries are coming down, stimulus packages are being put together and banks are being supported. But the market’s feeling very depressed.”

Japan’s Nikkei managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday, but MSCI’s measure of other Asian stock markets put on just 0.2 percent.

EURO PRESSURED AS ECB CUT EYED

Also under pressure, the euro fell 0.7 percent against the dollar on the day to $1.2626 and was also weaker against the yen , while the dollar climbed 0.6 percent against a basket of major currencies.

But demand for less risky assets continued to mount, helping to push government bond yields lower.

The 10-year euro zone government bond yield plumbed a low of 3.004 percent — a level last seen in Sept. 2005, while the benchmark 10-year yield for U.S. Treasuries was at 2.727 percent, not far off a five-decade low of around 2.651 percent set on Monday.

“Economic indicators are plunging like there is no tomorrow and central banks are gearing up for significant easing,” said Elwin de Groot, a strategist at Rabobank, noting 100 basis point rate cuts from Australia and Thailand this week.

The ECB meets on Thursday and most economists expect an interest rate cut of 50 basis points, while the Bank of England is forecast to cut rates by an aggressive 100 basis points.

Sweden’s central bank is likely to slash rates by a record 100 basis points, or possibly more, on Thursday when it announces the result of its meeting, which it brought forward by almost two weeks.

Meanwhile, U.S. crude edged up 41 cents to $47.37 but was within striking distance of Tuesday’s trough of $46.82 — a low last seen in May 2005.

Gold slipped to $774.80 an ounce, down $6.70 from New York’s notional close on the back of a broadly firmer dollar.

By Ian Chua
LONDON, Dec 3 (Reuters)

The second quarter has seen lower client-related trading volumes, little banking activity, losses related to ineffective hedging and reversals of gains on fair valuing liabilities, [Citigroup analyst] Prashant Bhatia wrote in a note dated May 16.

He expects significant asset sales related to leveraged loan inventory, and commercial and residential mortgages as a result of a greater degree of liquidity in the marketplace.

“While the environment seems to have improved considerably in May, it will not offset the considerable weakness in March and April,” he added.

Meanwhile, consumer sentiment is getting “extremely grumpy”, according to a report by Jennifer Yousfi on Money Morning.

Mirroring the stagflation of the early 1980s, consumer sentiment hit its lowest level since that time period this month as short-term inflation continues to ramp up.

The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 59.5 in May from 62.6 in April. The index is at its lowest level since June 1980. Consumer confidence was at 85.6 as recently as 2007.

“The consumer is getting extremely grumpy,” Brian Bethune, director of financial economics at Global Insight Inc., who had forecast a decline in the confidence index to 59.6, told Bloomberg News. “The economy is flirting with a recession. The only thing keeping it out is this huge amount of pump-priming going on,” including aggressive interest-rate reductions by the U.S. Federal Reserve, the government’s stimulus package and deep discounting by retailers.

Lower-income households are feeling the rising prices at the pump and grocery store most acutely, the survey showed, as such households were the main cause for the index’s fourth consecutive monthly decline.