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By Kim Coghill and Claudia Parsons
Many investors said good riddance on Wednesday to one of the worst years on record and prayed that government rescue plans will pull the global economy out of its fierce tailspin later in the new year.
More pain is expected in the near-term as bleak economic reports roll in, flagging more bankruptcies, bad debts and layoffs through at least early 2009, and more sleepless nights for everyone from central bankers to consumers struggling to pay off mortgages and credit card bills.
The biggest financial crisis in 80 years, sparked by a U.S. mortgage meltdown, made this year one of the worst ever for investors as recession stalked the global economy.
"It has been a shocking year, hardly anything was spared in the market carnage," said Michael Heffernan, senior client adviser and strategist at Austock Group in Australia.
The slump wiped out nearly $14 trillion in market value, according to the benchmark MSCI world index of larger companies.
"If there's any optimism, it's on the basis that stock markets recover in recessions," said Justin Urquhart Stewart, director at Seven Investment Management.
"Now we have the real recession, rather than the phony recession. Last year we were so optimistic, that we were fooling ourselves. It's now gone too far the other way. We've discounted a huge amount of bad news."
Full-year losses on major world stock indexes ranged from 31 percent in London to 65 percent in Shanghai.
CRISIS VICTIMS
The crisis of 2008 has radically changed the financial landscape, bringing down U.S. investment banks Bear Stearns and Lehman Brothers, saddling other banks with huge losses and freezing the credit system that keeps world business humming.
Victims of the crisis are still piling up, with announcements almost daily of fresh company losses, more layoffs, and slumping prices for assets from cars to homes.
LyondellBasell, the world's third-largest petrochemical firm, said it is considering filing for Chapter 11 bankruptcy protection as it tries to restructure debt.
Next Monday, members of the U.S. House Financial Services committee will take their first close look at the alleged $50 billion fraud by Wall Street financier Bernard Madoff, whose burned investors ranged from bearish "Dr. Doom" economist Henry Kaufman to actor Kevin Bacon.
Madoff faced a deadline on Wednesday to tell regulators how much he is worth and where his money and other assets are.
Oil surged to $44.60 a barrel on Wednesday but was still down 54 percent in 2008, hit by the economic slowdown. Oil has plummeted since a high in July above $147.
Gold was one of the few commodities to end higher on the year as economic turmoil burnished its lure as a haven for investors scampering away from risk.
Economic reports on Wednesday were mixed.
A larger than expected fall in new U.S. jobless claims reported on Wednesday was attributed to seasonal factors. A yearlong U.S. recession has already destroyed 2.7 million jobs, pushing unemployment up to 6.7 percent, with many economists expecting it to rise above 8 percent in 2009.
Separate reports on business activity in New York City and Milwaukee showed no sign of recovery, while 30-year fixed mortgage rates eased for the ninth week as official efforts to bolster the housing market appeared to gain traction.
HOPE SEEN IN INTERVENTION
With central banks cutting interest rates and governments pumping money into the system, some see better signs for 2009.
"I think we'll move ahead a bit in the new year and then stabilize for a while. Global policymakers are doing their utmost to ensure the recession doesn't degenerate into a deflationary malaise," said Mike Lenhoff, chief strategist at Brewin Dolphin.
World governments have started pumping more than $1 trillion into their economies, and more is expected in 2009.
In the latest bailout, the International Monetary Fund said on Wednesday it had agreed on a $2.5 billion emergency loan package with Belarus.
The U.S. Federal Reserve on Tuesday built on efforts to cut mortgage costs, setting a goal of buying $500 billion of mortgage-backed securities by mid-2009.
China's central bank reaffirmed on Wednesday that it would implement a moderately loose monetary policy as it seeks to reinvigorate its once fast-growing economy. [nLV504083]
Indonesia's president promised further fiscal stimulus to help Southeast Asia's biggest economy.
Global credit markets are showing signs of improvement, but banks remain reluctant to lend.
Government stimulus plans, corporate bailouts and rate cuts take time to be felt and their benefits are hotly debated. Nonetheless, mounting job losses are raising fears of social unrest in some countries, and piling pressure on governments to act quickly, even if it means huge deficits and debts.
Investors are now looking to January, when Barack Obama will be sworn in as U.S. president on January 20. He is expected to unveil a government spending programme which sources say could range from $675 billion to $775 billion over two years.
The new year will also mark attempts by policymakers to overhaul outdated regulatory systems to avert future crises.
U.S. Treasury Secretary Henry Paulson said the government had to battle the financial crisis without the tools needed to do the job, the Financial Times reported.
"We're dealing with something that is really historic and we haven't had a playbook," he said.
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