* U.S. January home sales at slowest pace since July 1997
* Japan exports fall, German economy slides at record pace
* S&P says more sovereign downgrades than upgrades in 2009
* U.S. stocks fall more than 1 pct (For more on the financial crisis, click [nCRISIS])
By Daniel Bases
NEW YORK, Feb 25 (Reuters) - News of plunging exports hit Japan and Germany, while home sales fell in the United States, painting a grim economic picture on Wednesday, the day after President Barack Obama offered assurances the United States would emerge strengthened from the financial crisis.
U.S. stocks fell on disappointment that Obama's speech, his first major address to Congress, lacked details of his plan to rebuild the U.S. economy.
Obama's budget proposal, scheduled to be on Thursday, should provide a fuller picture, including insight on his pledge to cut subsidies to big farm businesses. This will reopen a long-simmering fight about whether -- and if so, how -- the United States should reform its traditional farm supports. For details, see [ID:nN25500893]
Federal Reserve Chairman Ben Bernanke, in a second day of testimony to Congress, eased concerns that U.S. banks would be nationalized but reiterated a warning the U.S. recession could drag into next year without government intervention. [ID:nN25471427]
The U.S. central bank chief's suggestion to lawmakers that big banks would survive the downturn without being nationalized helped to snap a six-day losing streak in U.S. stocks on Tuesday.
"There was a little bit of an overshoot to the upside yesterday and we're just giving some of that back early as President Obama didn't have anything substantive to say last night," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
Egged on by U.S. data showing sales of existing homes last month dropped to the slowest pace since July 1997, investors pushed down U.S. stocks. This helped to send share prices in Europe lower as well. [ID:nN25480760]
A late U.S. market rally fizzled as Washington launched tests to gauge banks' abilities to withstand a long and deep recession, raising the specter of greater regulation.
The Standard & Poor's 500 stock index <.SPX> ended 1 percent weaker after briefly reaching into positive territory.
Adding evidence of the deepening global recession, Standard & Poor's downgraded hard-hit Ukraine and warned there wouldlikely be more sovereign downgrades than upgrades this year versus 2008. [ID:nLP353568]
EXPORTS EVAPORATE
Other reports showed plunging global exports drove Japan's trade deficit to a record 952.6 billion yen ($9.82 billion) and caused a sharp economic contraction in Germany.
Japan's exports fell by 45.7 percent to hit a 10-year low in value, hit by slumping demand for cars and electronics.
"Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signaling that even China's economy may be shrinking," said Takeshi Minami, chief economist at Norinchukin Research Institute.
One bright spot for Japan was a report in the Nikkei newspaper that the government is considering using public funds to buy stocks directly from the market. The Nikkei stock market gained 2.65 percent, shrugging off the export data.
Germany's economy, Europe's largest, contracted a record 2.1 percent in the fourth quarter of 2008, its worst performance since reunification in 1990. Plunging exports were to blame.
Britain's economy shrank an unrevised 1.5 percent in the same period. [ID:nLP311970]
Aiming to stabilize rapidly slowing economies, governments continue to offer stimulus and even direct investment in major lenders, while reforming oversight to instill greater market confidence.
A report delivered to the European Commission on Wednesday said financial sector oversight across the European Union needed repairing urgently. [ID:nLP384492]
European Commission President Jose Manuel Barroso told reporters concrete proposals would be presented in April covering private equity, hedge funds and remuneration schemes.
Regulators around the world are under pressure to tighten supervision of financial firms and products and face blame for failing to prevent the global crisis or to restore sufficient confidence in its wake.
Britain is expected to unveil details of a plan on Thursday to limit banks losses on about 500 billion pounds ($728 billion) of risky assets, which is designed help prevent full nationalization.
Italy approved its long-awaited bank recapitalization scheme on Wednesday.
Jitters over too much state ownership persist, however.
British Finance Minister Alistair Darling touched on the sensitive topic of full nationalization in an opinion piece in the Financial Times newspaper on Wednesday.
"It is important that the banks' equity will continue to be owned by institutional and individual investors as well as by the government," he said. (Reporting by Reuters bureaus worldwide; Writing by Daniel Bases; Editing by Chizu Nomiyama)