* Stocks start week sharply higher on stimulus hopes
* Sarkozy, Brown and Barroso to meet ahead of EU summit
* Negotiators work on bailout for "Big Three" US automakers
* U.S. Fed policymaker says room for rate cuts is narrow
* Chinese leaders gather to map out economic steps
By Mike Peacock
LONDON, Dec 8 (Reuters) - Chinese and European leaders were due to plot their next steps on Monday to steer the world economy away from a precipice, while stimulus measures presented, planned or pending propelled stock markets higher.
The U.S. Senate was set to reconvene as White House and Democratic congressional negotiators sought to agree a rescue package for the ailing "Big Three" U.S. automakers including at least $15 billion in loans.
The talks gained urgency after Friday's U.S. employment data showed more than half a million jobs were lost in November.
Stock markets shot up on hopes the package would be agreed, and on President-elect Barack Obama's plans to revive the economy.
European shares were up 6 percent and U.S. stock futures pointed to a higher start for Wall Street.
The global downturn has engulfed all automakers.
Italian carmaker Fiat said it was too small to survive alone, as Sweden reportedly considered a rescue package for Volvo and Saab.
Japan's Toyota Motor Corp is eyeing a sharp cut in capital spending, according to a newspaper report.
And Daimler AG's main manufacturing plant in Germany will adopt a shorter work week for three months from Jan. 12 as demand evaporates, the group's labour leader said.
OBAMA PLAN
Obama unveiled his stimulus plans at the weekend, featuring the largest U.S. infrastructure programme since the 1950s and plans to create 2.5 million jobs, which analysts said could cost at least $500 billion.
"Obama looks like he's going to be able to fast-track one of the largest infrastructure spending packages since the history of mankind," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.
A Federal Reserve official said the U.S. central bank was running out of room to cut interest rates, and fiscal policy should play a bigger role in spurring the recession-hit economy.
The Fed is expected to cut rates to just 0.5 percent next week, following a dramatic round of cuts in Europe and Asia.
"Increasingly, many observers and commentators are suggesting that fiscal stimulus will be an important element of economic recovery," Boston Federal Reserve President Eric Rosengren said in remarks prepared for delivery to a conference in Geneva, Switzerland.
EUROPEANS MEET, CHINESE PLAN
British Prime Minister Gordon Brown, French President Nicolas Sarkozy and European Commission chief Jose Manuel Barroso were to meet business leaders in London later on Monday.
And China's leaders gathered to map out economic policy for next year, with the government struggling to shore up growth and jobs as export demand shrinks.
The "central economic work conference" meets in a closed session likely to last three days to discuss ways to keep annual growth at 8 percent or higher, said a report on the official Xinhua news agency's website (www.xinhuanet.com).
"There is a lot of talk about support measures from China, including buying up more bank shares, a rescue package for the stock market and other steps to boost private consumption," said Peter Lai, director with DBS Vickers.
The EU leaders meet just before a European Union summit in Brussels on Dec. 11 and 12, which will study European Commission proposals to give the sagging economy a sharp boost with a 200 billion euro ($250 billion) spending plan.
Britain and France have announced ambitious stimulus plans to jump-start their own faltering economies. Europe's biggest economy, Germany, is resisting pressure to provide billions more euros to reach the scope suggested by the Commission, arguing that its already-launched fiscal programme is enough.
Berlin has also been at odds with Brussels over bank aid.
The European Commission, under pressure to speed up its decision-making, approved a French bank rescue scheme on Monday and said it expected similar deals with Germany, Austria and others in coming days.
EU Competition Commissioner Neelie Kroes said Paris had tightened the terms under which banks must pay back aid but Germany still needed to make "minor changes" in order to reach a deal on state assistance for Commerzbank.
German Chancellor Angela Merkel was not attending Monday's meeting in London. A German government spokesman denied last week that she had been snubbed.
INDIAN AND AUSTRALIAN STIMULUS
India weighed in on the stimulus front, announcing on Sunday a $4 billion spending package to revive growth and shore up confidence knocked by militants' attacks on Mumbai. That followed a full point rate cut on Saturday.
Australia began handing out more than A$8 billion ($5.3 billion) to consumers, part of a stimulus package unveiled in October.
"If the government doesn't empower consumers at a time like this, in the midst of global financial crisis, then in fact we will have even greater challenges ahead," Prime Minister Kevin Rudd said.
But a lack of bank-to-bank lending remains at the root of the world economy's problems. Banks deposited 250 billion euros at the European Central Bank overnight, a sign they are still hoarding money as fears of further bank collapses persist. (Additional reporting by Reuters bureaux worldwide; Editing by Kevin Liffey)