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TOPWRAP 4-US auto rescues skid, Europe helps weak lenders

Published 03/30/2009, 10:50 AM
Updated 03/30/2009, 10:56 AM
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* GM, Chrysler restructuring plans rejected; GM CEO out

* Germany, UK and Spain in new lender rescues

* Obama to make formal announcement

* Stocks in U.S., Europe fall 3 pct; Japan drops 4.5 pct

By Brian Moss and John Crawley

NEW YORK/WASHINGTON, March 30 (Reuters) - The United States rejected rescues for General Motors and Chrysler, rekindling concern the automakers could go bankrupt, while three European governments aided struggling lenders.

A White House task force rejected restructuring plans and pleas for billions in funding from the two automakers on Monday, forcing GM Chief Executive Rick Wagoner to step down.

U.S. President Barack Obama, who was to make an announcement at 1500 GMT (11 a.m. ET) on the auto industry, said on Sunday the two companies had not done enough to save themselves since receiving a $17.4 billion bailout in December.

GM will get funds to keep operating for 60 days, but up to $30 billion in new loans it is seeking will be on hold until it reworks its restructuring plan.

Chrysler, controlled by Cerberus Capital Management, was told to complete a planned alliance with Italy's Fiat within 30 days or risk liquidation.

The White House's emphatic rejection of the automakers' plans and further trouble for banks in Europe sent world stocks tumbling and lifted government bonds.

The Dow Jones industrial average dropped 3 percent at the open following stock market falls in Europe and Tokyo that sent world indexes to a one-week low. GM shares dropped 25 percent.

"The fact that there's still a chance of GM going bankrupt is shocking," said Takashi Ushio, head of investment strategy at Marusan Securities in Japan.

The stock falls come as British Prime Minister Gordon Brown prepared to host a summit of G20 leaders beginning on April 2 in London.

Leaders of the biggest economies will commit to pursuing responsible economic policies that do not hurt each other's prospects with protectionism or currency devaluations, according to a draft communique obtained by Reuters.

Wagoner's departure from GM marked only the second time since the financial crisis began last year that the U.S. government has forced a CEO from his job. American International Group (AIG) boss Robert Willumstad was ousted last September.

The government's role in removing Wagoner raised questions, particularly for U.S. banks that have received large bailouts.

"The worst part about this is anyone else who may need government assistance or help realizes that they are in for it, the government will put a heavy hand and tell you what to do," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"And when government gets involved, most of the time, it's inefficient," he said.

French autos group PSA Peugeot Citroen CEO Christian Streiff also lost his job when his board sacked him on Sunday, citing a need for change to tackle an unprecedented slowdown for the industry.

RESCUES SPREAD

Governments have focused most of their energy on fixing the financial sector, at the heart of the crisis.

Spain, among Western Europe's hardest hit economies, on Sunday was forced to rescue its first bank since the crisis began.

The Bank of Spain unveiled a plan including 9 billion euros ($11.9 billion) in guarantees to bail out regional savings bank Caja Castilla la Mancha, which like much of the Spanish economy is reeling from a slump in its once-booming property market.

Germany also took action, agreeing to buy an 8.7 percent stake in stricken Hypo Real Estate as a prelude to acquiring full control under a plan announced on Saturday.

Hypo shares were up 34 percent to 1.54 euros in Monday afternoon trading.

The Bank of England was forced into action again at the weekend as it organized a takeover of Scottish building society Dunfermline.

Its core operations will be taken over by the UK's largest building society, Nationwide, which has now gathered in three smaller rivals, while the Bank of England set up a bridge bank to safeguard the lender's social housing business. (Additional reporting by Reuters correspondents in New York, Detroit, Paris, Tokyo and Hong Kong; Editing by Anthony Barker and Steve Orlofsky)

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