New York - The White House weighed emergency funding to avert collapse of the US automotive industry on Friday and buttress a financial system tested anew by possibly the biggest Wall Street fraud ever.
Ecuador declared itself in default on its debt, Opec debated production cuts and Europe agreed to a e200 billion (R2.73 trillion at Friday's exchange rate) stimulus package, while the US struggled to navigate the recession with President George W Bush a lame duck until Barack Obama takes over on January 20.
"This is ugly and getting uglier," Peter Kenny, the managing director at Knight Equity Management in New Jersey, said on Friday.
"Pick your poison. Do you want to talk about autos, or some of the macroeconomic data we've had coming out or do you want to talk about Madoff?
The pain was already widespread in the US economy, where 10.3 million people are out of work and Wall Street bonuses are expected to fall 50 percent this year.
Then Bernard Madoff, a quiet force on Wall Street for decades, was arrested late on Thursday on allegations his hedge fund had perpetrated a $50 billion (R511 billion at Friday's exchange rate) fraud, which sent investors scrambling to assess their losses.
"It appears that at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven'," said Douglas Kass, who heads hedge fund Seabreeze Partners Management.
After Bush failed to persuade senators in his own party to support a $14 billion automotive sector bailout, the White House warned that the US economy could not withstand a car manufacturer collapse and said that it might provide emergency funding from the $700 billion financial bailout fund.
That helped Wall Street reverse an early selloff. The Dow Jones and Standard & Poor's 500 index closed about 0.7 percent higher.
The bailout legislation failure prompted concerns that one of the last bastions of the US manufacturing base could be forced into bankruptcy or collapse, jeopardising millions of jobs and having repercussions worldwide.
General Motors (GM) and Chrysler were seeking billions of dollars in immediate aid to avert collapse, and Ford Motor wanted a hefty line of credit.
GM said on Friday it would cut 250 000 vehicles from its first-quarter production schedule by temporarily closing 20 factories across North America.
The move affects most plants in the US, Canada and Mexico. Many will be shut down for the whole of January.
GM spokesperson Tony Sapienza said normal production would be about 750 000 cars and trucks for the quarter.
GM and nearly all car makers that sell in the US are mired in the worst sales slump in about 26 years.
With the rescue plan dead in congress, it was unclear what the next step would be from the White House.
"What will happen if General Motors goes into chapter 11 ? It will be bad for car parts suppliers ... It will be a meltdown," said Gaetan Toulemonde at Deutsche Bank in Paris.
The US troubles were accompanied by unsettling news around the world.
Ecuador's leftist President Rafael Correa declared he had defaulted on the country's foreign debt, refusing to make an interest payment due today on its bonds. That sent Ecuador debt prices plummeting and threatened to halt a recent emerging market rally.
Correa is an ally of Venezuela's President Hugo Chavez and his slogan is "life before debt". Ecuador has received record income from oil exports this year, and economists say it has enough funds to make the payment, but the default is driven by ideology.
Tokyo's Nikkei average fell 5.6 percent on the bailout failure, even as Japan expanded a fiscal stimulus plan and increased a war chest for bank rescues to $131 billion.
Tokyo had kept markets guessing on whether it would intervene to stop a surging yen from pushing the economy deeper into recession, but that likelihood passed once the dollar stabilised above the ¥91 (R10.20) rate after the White House signalled it might use financial bailout funds to help the automotive industry.