* U.S. holds record-large 2-year Treasury note auction
* China cuts lending rate for fifth time since September
* Japan's Nov exports plunge, sentiment at all-time low
* Caterpillar, Toyota slash spending as demand fades (For full crisis coverage, click [nCRISIS])
By Tomasz Janowski and Emily Kaiser
SINGAPORE/WASHINGTON, Dec 22 (Reuters) - The United States sold a record-large amount of debt on Monday and China cut interest rates for the fifth time since mid-September as gloomy economic and corporate reports showed the world economy was stuck in a deep rut.
Japan reported its biggest-ever drop in exports in November while euro zone industrial new orders in October posted the deepest plunge on record, providing the latest evidence that demand was falling more quickly than governments can respond.
"This is a truly global recession," Merrill Lynch economist David Rosenberg said, pointing to Japan's weak export figures, which included a 34 percent drop in U.S. shipments.
The world's top carmaker, Toyota Motor Co <7203.T> forecast its first-ever group operating loss -- 150 billion yen ($1.7 billion) -- due to a collapse in global demand and a crippling rise in the yen. [nT299128]
U.S. heavy equipment maker Caterpillar Inc
The U.S. government has ramped up spending to try to cushion the economic blow, and even more stimulus is on the way when President-elect Barack Obama takes office next month. His staff is discussing how much money Congress should authorize for a package that is likely to be well over $600 billion.
That points to a massive jump in debt issuance in the coming year. So far, the United States is having no trouble attracting sufficient buyers for government debt, and a record-large $38 billion two-year note auction on Monday drew bids covering more than twice that amount.
British central bankers said interest rate cuts alone would not cure growing global economic ills that began with a crisis in the U.S. housing market and has toppled major global financial institutions. [ID:nLM646978]
The People's Bank of China announced another cut in lending rates, underlining the scale of problems facing the world's fourth-largest economy and the only major one that is still growing. For more, see: [ID:nPEK3122116]
"The economy is slowing more sharply than expected and I think that's why the central bank rushed to cut rates again now," said Xing Ziqiang, economist at China International Capital Corp in Beijing.
The cost of one-year bank loans would fall to 5.31 percent from 5.58 percent, while the benchmark one-year deposit rate falls to 2.25 percent from 2.52 percent.
SAFE HAVEN
Interest rates were lowered almost to zero in the United States and Japan last week. But investors have flocked to the safe-haven of the U.S. Treasuries market, even if parking money there means negligible returns, or even slight losses.
The incoming administration will also have to find a way to tackle the root of the economic ailments, namely the falling housing market. A report issued on Monday showed that many borrowers whose home loans were modified to avoid default ended up seriously behind in payments just six months later. [nN22499733]
British central bankers -- who have cut rates by three percentage points since October -- warned that interest rate cuts alone would not solve the financial crisis.
Bank of England Deputy Governor Sir John Gieve said Britain needed some form of new policy tool beyond the "blunt instrument" of interest rates. His colleague, Tim Besley, said monetary policy was not enough to bring Britain's flagging economy back to life. [nLM559877]
"We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy ... and individual supervision and regulation of individual banks," Gieve told the BBC.
In Ireland, shares in the three main banks soared following a 5.5 billion euros ($7.7 billion) government injection that leaves one of them under state control. [nLM538139]
The government announced late on Sunday it would make an
initial investment of 1.5 billion euros in Anglo Irish Bank
Dublin will also invest 2 billion euros each in market
leaders Bank of Ireland
CONDITIONS WORSENING
In Japan, a Reuters Tankan survey showed business sentiment at the lowest in its 10-year history and Bank of Japan Governor Masaaki Shirakawa said worse was to come.
"The Japanese economy is deteriorating and for the time being its conditions are likely to become more severe," he told business leaders. [ID:nTKB003175]
The government's monthly economic report summed it up in a similar vein. "Economic conditions are worsening," it said, the first time it used such an expression since February 2002.
(For a graphic on Japan's exports, click on https://customers.reuters.com/d/graphics/JP_EXP1208.gif)
Nonetheless, Tokyo stocks bucked the downward trend, rising 1.6 percent, encouraged by the government's spending plans and Friday's $17.4 billion bail out of U.S. carmakers.
U.S. stocks slid as the economic slowdown continued to eat into corporate profits and outlooks, with retailers down on worries of lacklusterChristmas sales.
All three major indices were off, with the Dow Jones industrial average down 1.5 percent, the Nasdaq down 3.3 percent and the S&P off 2.7 percent in midafternoon.
A source said China's $1.9 trillion reserve stockpile shrank in October, which some economists say may mark a potentially worrying reversal to capital outflows. [ID:nPEK295248]
Frantic global efforts may still fall short of what is needed to stave off the worst economic downturn since the 1930s, International Monetary Fund chief Dominique Strauss-Kahn warned.
"Our forecast, already very dark ... will be even darker if not enough fiscal stimulus is implemented," he said in an interview with BBC radio on Sunday. [ID:nLL108116] (Reporting by Reuters bureaus around the world; Editing by Dan Grebler)