Signs of Depression

By Nicole Maestri

COLUMBIA, Maryland (Reuters) - The holiday shopping season got off to a slow start as consumers, squeezed by the economic crisis, bought carefully and said they would wait for better deals closer to Christmas.

Early results from the Black Friday weekend, which kicks off holiday sales one day after U.S. Thanksgiving, bolstered forecasts by some analysts that total holiday sales could contract for the first time since that data started being collected in the early 1990s.

ShopperTrak, which measures customer traffic, said on Saturday that Black Friday sales rose 3 percent to $10.6 billion. That was slower than an 8.3 percent rise in 2007.

"The initial response by many people may be positive," said Telsey Advisory Group analyst Joseph Feldman of the increase.

But, Feldman said, excluding inflation the sales figures are roughly flat year over year. His firm still expects overall holiday sales will be flat to slightly down.

Shoppers interviewed on Saturday said they were disappointed by the deals this weekend and bet stores would offer even steeper discounts in the weeks to come -- a worrisome sign for retailers struggling with weak profits.

"I'm not happy with the prices," said Rose Fernandez, shopping at a Macy's in Jersey City, New Jersey. "If it's worth the money, I would pick it up... If I can wait, I wait and watch. I can wait even till the day after Christmas."

ShopperTrak noted that stores would have a shorter holiday season, with 27 days between Thanksgiving and Christmas, compared with 32 days in 2007.

"(That) may catch some procrastinating consumers off guard, leading to lower sales levels," said Bill Martin, co-founder of ShopperTrak.

PENDING LAYOFFS PUT PURCHASES ON HOLD

Retailers are facing what could be the weakest sales season in nearly two decades as shoppers contend with falling home values, reduced access to credit and a weak job market.

The three-day Thanksgiving weekend can account for 10 percent of overall holiday sales and has taken on added importance this year as the country seeks a way out of its worst economic crisis since the Great Depression.

Heidi Hickman, a marketing manager, was browsing at a J.C. Penney in Jersey City on Saturday, but gifts were not on her mind.

"I got a notice there are going to be layoffs in my department," she said. "It's making me stop right now and not do anything until I find out."

If sales for November and December decline, it would mark the first contraction since the National Retail Federation began tracking holiday sales in 1992.

"I have very little confidence that the sales number will be up year-over-year," for the season, said Stacey Widlitz, retail analyst with Pali Capital.

In a highly competitive battle to attract shoppers, some retailers, including Kmart, opened on Thanksgiving day, while others began sales on Friday right after midnight.

In Chicago, Gap Inc's Old Navy chain opened at 7 a.m. (1300 GMT) on Saturday but an employee said there was little to do until 9 a.m. (1500 GMT), when shoppers finally began to arrive.

A nearby Sears had cut prices on holiday decorations by 60 percent, while clothing retailer Charlotte Russe tried to entice shoppers with a deal to buy one item and get another item for 50 percent off.

Penney said Black Friday shopping was strong as consumers sought deals on practical gifts, like sweaters. But it did not release sales figures for the weekend, saying the economic environment was too volatile.

Amazon.com Inc said Apple's iPod touch, which has a touch-sensitive screen, was its top-selling electronics item on Black Friday morning, while the Wii Fit, for Nintendo Co Ltd's Wii video game console, was its most popular video game.

SHOPPERS EXPECT PRICES WILL FALL

As shoppers sought low prices online, eBay's Web payments service PayPal saw 34 percent more transactions on Black Friday than in 2007 and showed a 26 percent increase in online payment volume.

In Los Angeles, Jenipher Park, 36, and Keri Yang, 34, bought boots at Nordstrom on Saturday, but both were expecting bigger discounts.

They said they will delay more purchases to get better deals closer to Christmas, and this year the two moms are planning to only get gifts for their children.

Many shoppers echoed those sentiments, saying they would find other ways to celebrate with adult relatives and friends. Some were already turned off to the very idea of shopping.

"I'm not into shopping this year like I was the year before," said Rolando Ramos, 29, on a visit to Chevy Chase, Maryland. "It's very depressing. Go to the malls, just looking around, it's deserted."

Widlitz said she expected discount behemoth Wal-Mart to win shoppers this holiday because of its low prices.

At a Wal-Mart store in Columbia, Maryland, on Friday, the parking lot was full at 7:30 a.m. (1230 GMT) and customers stood in line 10 shopping carts deep to make purchases.

(Reporting by Nicole Maestri; Additional reporting by Jessica Wohl, Ben Klayman, Lisa Baertlein and Aarthi Sivaraman; Editing by Vicki Allen)

By Rania El Gamal and Alex Lawler

CAIRO (Reuters) - OPEC on Saturday deferred a decision on a new oil supply cut amid signs that Saudi Arabia and its Gulf allies are demanding tighter adherence to restraints put in place over the past two months.

Gulf producers want to see strict compliance with recent output curbs of 2 million barrels a day before considering further reductions when the Organization of the Petroleum Exporting Countries meets in Algeria on December 17.

"Compliance I think is OK," said Kuwaiti Oil Minister Mohammad al-Olaim. "But the market conditions require us to be 100 percent compliant."

Delegates said that ministers discussed how much more they needed to cut in December. Most, including Gulf producers led by Saudi Arabia, saw a requirement to slice another 1 to 1.5 million bpd. But for that to happen, delegates said, Riyadh wants proof that all fellow members are meeting their part of existing curbs.

"We are very concerned about overproduction," said Qatari Oil Minister Abdullah al-Attiyah.

While OPEC's first priority is to put a floor under a $90-collapse in oil prices to $55, Saudi Arabia for the first time in years identified a "fair" price -- $75 a barrel.

That target will serve as a reference point for traders when world oil demand starts to emerge from the current recessionary slump.

But for now, the oil market is focused on whether OPEC can prevent prices falling further by avoiding the sort of divisions that have undermined its response to falling prices during previous economic downturns.

"$75 a barrel doesn't look doable in the short term," said Raja Kiwan of consultancy PFC Energy. "Given the fractious nature of OPEC on quota compliance, they may have some problems."

LEAKS?

Delegates identified Iran and Venezuela, perennial price hawks who have urged quicker cuts, as particular sources of concern on quota compliance. Venezuela denied the charge. Iran made no comment.

But consultants Petrologistics estimated last week that, based on shipping data, Iran's production would fall by 80,000 bpd this month, much less than the 199,000 bpd it is due to cut.

OPEC will want to keep any bickering under wraps.

Secretary General Abdullah El-Badri said compliance already was "100 percent" and OPEC President Chakib Khelil said in an official statement that members were "fulfilling their commitments."

Early industry estimates show Saudi Arabia and its Gulf neighbors making good their share of OPEC's 2 million bpd of cuts since September.

Petrologistics data estimated OPEC output falling by 1.22 million bpd in November, with nearly half of that reduction shouldered by Saudi -- Riyadh is only responsible for about a third of OPEC output.

OPEC may need to make larger cuts to balance the rapid decline in demand among Western economies that has caused inventories to swell. World oil demand is set to contract this year for the first time in 25 years.

"The bottom line is that they need to cut again and they need to cut substantially," said Gary Ross, CEO of consultancy PIRA Energy. "Demand is falling out from beneath them."

Naimi said he would like to see inventory cover among OECD industrialized nations down to 52 days from current levels of 55-56 days of forward demand, the top of the seasonal norm.

OPEC has a mixed record of dealing with downturns in the economy that curb energy demand.

In 2001 it successfully defended prices by removing 5 million bpd in four stages, 19 pct of its supply, laying the foundation for a 6-year boom in oil prices that culminated this summer in a record $147 a barrel.

But in 1997 in Jakarta, at the start of the Asian financial crisis, Saudi pushed through an OPEC increase after Venezuela openly flouted its cartel supply quota by a large margin.

Prices went into a tailspin and U.S. crude hit a low of $10.35 at the end of 1998.

(additional reporting Peg Mackey, Luke Pachymuthu and Will Rasmussen, writing by Richard Mably, editing by Jonathan Leff)

By Tomasz Janowski and Ralph Boulton

SINGAPORE/LONDON (Reuters) - Japan's industrial output tumbled in October, evoking memories of a decade-long stagnation in the 1990s, while major European companies warned of harsh times ahead.

Chinese insurer Ping Ang provided a striking illustration of the global nature of the crisis when, according to a government source, it asked the Chinese government to help seek compensation from Belgium over its losses in the European financial group Fortis after the group's nationalization.

India, like China a major contributor to global economic growth in recent years, reported better than expected growth of 7.6 percent in the third quarter versus a year earlier. But the economy lost momentum from the previous quarter's 7.9 percent growth.

Prospects now appear clouded by militant attacks in Mumbai, where operations by Indian commandos on Friday revealed dozens more bodies in a luxury hotel. The violence in India's financial hub, together with a state of emergency in Thailand, underscored political unrest as another potential threat to emerging markets battered by the crisis.

With the U.S. holiday shopping season kicking off on Friday, the day after the Thanksgiving holiday, businesses and investors in north America expect more grim news. The concern is that even deep discounts offered by struggling U.S. retailers will fail to lure shoppers, fearing for their jobs and squeezed by debt.

Authorities have responded, spurred by mounting evidence that the financial industry upheaval triggered by heavy losses in the U.S. housing market is pushing the world economy into its worst downturn in decades.

FALLING OUTPUT

The most alarming economic figures on Friday came from Japan. The world's second-largest economy announced a fall of 3.1 percent in industrial output for October, more than expected, with a drop more than twice as big predicted for November.

Household spending fell 3.8 percent from a year earlier, also more than expected.

The speed at which Japanese firms were slashing production and consumers were scaling back their spending, surprised economists and suggested the economy was in for a deeper and longer recession than earlier thought.

"Production is falling much faster than we had expected. Companies are adjusting their production very quickly," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research. "The auto makers are the worst hit, but their turmoil is starting to spill over to other sectors, such as steel makers."

Results from Austrian builder Strabag highlighted the spread of the crisis into broader commerce that has increased bankruptcies and unemployment throughout the world.

Strabag announced it would cut its investments by more than half next year. Shares in Strabag, one of Europe's biggest builders, have lost 72 percent this year.

German industrial conglomerate ThyssenKrupp posted better than expected 2007/8 pretax profit, but it declined to propose a higher dividend or give a forecast for the coming year.

The company, Gemany's biggest steelmaker, said the economic crisis in the automotive, engineering and construction industries would leave its mark.

Reflecting the gloom affecting the motor industry from Detroit to Tokyo, a top executive at Honda Motor Co told Reuters Japan's no. 2 automaker faced a "Herculean task" meeting its already downgraded profit goals for this year.

The bleak Japanese output data followed China's warnings on Thursday that the world's fastest-growing major economy was in a sharp slowdown that threatened its stability, and a drop in euro zone business sentiment to a 15-year low that prompted calls for a big cut in the region's interest rates.

In South Korea, Asia's fourth-biggest economy, an unexpected sharp drop in factory output in October led some analysts to expect a full-blown recession rather than a slowdown projected by the authorities.

Canada joined the growing number of nations officially in recession, with Japan, Germany, Italy and the euro zone as a whole already on the list and the United States and Britain expected to get there soon.

The Canadian government said it expected the world's ninth largest economy would contract in the current and next quarter. But unlike many of its peers, it offered scant immediate relief to the economy, drawing ire from opposition parties and raising the prospect of an early election.

MARKETS UP

Central banks have slashed interest rates to get credit flowing again and governments have pledged trillions of dollars in bank bailouts, extra spending and tax cuts to kick-start their economies and avoid massive job losses as companies cut costs.

On Friday, industry sources said the world's top two contract chip makers, Taiwan's TSMC and UMC were preparing to cut costs by up to 20 percent in anticipation of a sharp downturn in the sector.

China's hefty 108 basis point rate cut earlier this week, the U.S. Federal Reserve's $800 billion plan to rescue battered credit markets and hopes for a government bailout of U.S. carmakers, helped lift world stocks to two-week highs this week.

In Asia, markets extended gains, heading for a sixth straight rise in trade subdued by the lack of cues from Wall Street. Japan's Nikkei ended 1.7 percent higher, even as investors dumped shares of Panasonic, sending it tumbling 10.9 percent after it joined other electronics makers and cut its profit forecast. Shares in the rest of the Asia-Pacific region were up 1.8 percent.

European stock markets opened slightly up.

LONG CONTRACTION

The Japanese data challenged the view of some investors that markets had already fully discounted the economic downturn scenario and it was time to pick up some bargains. Japanese government bond futures rose after the bleak numbers.

Some economists saw Japan's economy shrinking for a full year, which would be the country's longest ever contraction.

Japan tackled its last decade-long spell of deflation with a policy of massively inflating banks' balances with zero-interest cash, but analysts are divided whether the central bank is ready to drive its rates, now at 0.3 percent, to zero again.

(Reporting by Reuters bureaux worldwide; Editing by Mark Trevelyan)

By Ed Cropley

BANGKOK (Reuters) - Thai police were talking with anti-government protesters blockading Bangkok's airports on Friday, a senior police officer said, and will move against them if negotiations fail to end the siege.

"We are asking them to allow the airport to resume operations," Lieutenant-General Suchart Muenkaew, the chief police negotiator at Don Muang airport, told reporters.

"We will keep talking, but if it fails we will take other steps. The last step will be to disperse them."

The siege by People's Alliance of Democracy (PAD) protesters at Don Muang and Suvarnabhumi International Airport have cut the Thai capital's air links to the world, leaving thousands stranded and hurting the tourist-dependent economy.

The University of the Thai Chamber of Commerce said if the political turmoil and airport closures go on for another month, it would cost the economy up to 215 billion baht ($6 billion).

A government spokesman said the economy could lose at least 100 billion baht ($2.8 billion) if the sieges drag on for a month, and GDP growth for the year could be cut to 4 percent from a current estimate of 4.5 percent, already a seven-year low.

"While the question on whether the mess can be cleared up in a year is still an important one, the question on whether confidence would return even if it does get cleaned up in a month is beginning to look less clear," said Carl Rajoo, an economist at Forecast in Singapore.

Declaring a state of emergency at the airports from the government stronghold of Chiang Mai, 700 km (400 miles) north of Bangkok, Prime Minister Somchai Wongsawat said the export- and tourism-driven economy could not tolerate further disruption.

RELUCTANT TO ACT

But with security forces reluctant to act, and the protesters insisting they'll stay out until the government falls, the standoff could continue.

PAD guards had set up roadblocks on the main expressway to the airport and were stopping all cars and checking passengers and trunk compartments.

The roadblocks were manned by youths in black jackets, faces partly covered by masks. Some wore body armor and wielded wooden stakes and golf clubs.

"We will not leave. We will use human shields against the police if they try to disperse us," PAD leader Suriyasai Katasila told Reuters.

Thailand's three-year-old political crisis has deepened dramatically since the PAD began a "final battle" on Monday to unseat a government it accuses of being a pawn of former leader Thaksin Shinawatra, ousted in a 2006 coup. Somchai is Thaksin's brother-in-law.

Pressure has built on the army to step in since Somchai rejected military calls to quit, but pro-government forces threaten to take up arms if the elected administration is ousted, raising fears of major civil unrest.

Army chief Anupong has repeatedly said he would not take over, arguing the military is powerless to heal fundamental political rifts between the Bangkok elite and middle classes who despise Thaksin, and the poor rural and urban majority who love him.

But rumors of the army preparing to launch what would be Thailand's 19th coup or attempted coup in 76 years of on-off democracy continue to swirl around the capital.

The government began shuttling thousands of stranded tourists by bus to U-Tapao, a Vietnam War-era naval airbase 150 km (90 miles) east of Bangkok, as an alternative landing site for airlines.

According to a schedule hand written on a white board outside the terminal, flights from Cathay Pacific, Thai Airways and Malaysian Air Services were expected.

In bound flights bringing tourists for the peak season were expected to start arriving on Friday as well.

"Don't forget we're not Suvarnabhumi or Don Muang airports. The convenience and speed of services should be not be the same," warned Rear Admiral Surapong Ayasanond deputy director at U-Tapao.

(Additional reporting by Nopporn Wong-Anan; Editing by David Fox and Jeremy Laurence)

By Rina Chandran

MUMBAI (Reuters) - Indian commandos traded fire with Islamist militants as the endgame neared at a luxury hotel and a Jewish center in Mumbai on Friday, but the gunmen were thought to be still holding a handful of foreign hostages, officials said.

The head of one commando unit flushing out militants at the luxury Taj Mahal hotel said he had seen 12 to 15 bodies in one room among a total of 50 in the hotel.

The commandos found money, ammunition and an identity card from Mauritius that they suspected belonged to the militants, the commander, his face disguised by a black scarf and sunglasses, told a news conference.

Government and army officials said operations would be wrapped up within hours after Wednesday's brazen, coordinated attacks that killed at least 121 people.

But Indian TV channels reported fresh firing outside Mumbai's main railway station.

At another site, the Trident-Oberoi Hotel, well-dressed guests, some dragging their suitcases, trickled out and were escorted into waiting buses and cars after a 36-hour siege. One foreign member of the hotel staff left with a baby in his arms.

Police said 93 guests had been evacuated so far.

"They are evacuating everyone," said one Indian woman leaving the hotel with her husband. "Everyone is being taken care of."

At least one militant was still thought to be holding two hostages in the luxury Taj Mahal Hotel, an army commander said.

Army Commander Lieutenant-General N. Thamburaj told reporters that almost all guests and staff had been evacuated from the Taj and the operation would be wrapped up in a few hours.

"He is moving in two floors, there is a dance floor area where apparently he has cut off all the lights," he said.

"This morning while carrying out the operation we heard the sound of a lady and a gentleman, so it is possible that this terrorist has got two or more hostages with him."

Gunfire was still being heard at the hotel and the Jewish center, where hours earlier Indian commandos, their faces covered by balaclavas, rappelled from helicopters onto the roof to flush out another group of militants there.

At the center, in a crowded part of the city, a Reuters witness said troops fired inside to provide cover as commandos made at least three sorties and took up positions on the roof.

Gunmen are thought to be holding an Israeli rabbi and around three other people hostage there, officials said.

Mumbai, a city of 18 million, is the nerve-center of India's growing economic might and home to the "Bollywood" film industry.

Hindu-dominated India, which has a sizeable Muslim minority, has been hit by militant attacks for decades. But this strike seemed aimed at crippling its ability to draw foreign investment.

Australia upgraded its travel warning for India on Friday, telling its nationals to reconsider any plans to go there "because of the very high risk of terrorist activity."

India's main stock markets reopened on Friday after being closed on Thursday, the main share index down around half a percent by 2:15 a.m. EST.

PINNING BLAME

Prime Minister Manmohan Singh pinned blame for the attacks on militant groups based in India's neighbors, usually an allusion to Pakistan, raising prospects of renewed tension between the nuclear-armed rivals.

He warned of "a cost" if these nations did not take action to stop their territory being used to launch such attacks.

An estimated 25 men armed with assault rifles and grenades -- at least some of whom arrived by sea -- had fanned out across Mumbai on Wednesday night to attack sites popular with tourists and businessmen, including the city's top two luxury hotels.

Police said at least seven attackers were killed and nine suspects taken into custody. Twelve policemen were killed, including the chief of Mumbai's anti-terrorist squad.

At least eight foreigners, including one Australian, a Briton, a Canadian, an Italian and a Japanese national, were killed. Scores of others had been trapped in the fighting or held hostage. Police said 279 people were wounded.

PAKISTAN GROUP

The Hindu newspaper said at least three of the attackers taken into custody were members of the Lashkar-e-Taiba group, based in Pakistan.

The group made its name fighting Indian rule in disputed Kashmir, and has been closely linked in the past to the Pakistani military's Inter Services Intelligence agency, the ISI.

Lashkar-e-Taiba has denied any role in the attacks.

"It is evident that the group which carried out these attacks, based outside the country, had come with single-minded determination to create havoc in the commercial capital of the country," Prime Minister Singh said on Thursday.

"We will take up strongly with our neighbors that the use of their territory for launching attacks on us will not be tolerated, and that there would be a cost if suitable measures are not taken by them," he said in a televised address.

Pakistan, condemning the assault, promised full cooperation.

The militants appeared to specifically target Britons, Americans and Israelis, witnesses said. About 10 Israelis were being held in several different sites, authorities have said.

The attacks brought the biggest chaos to the city since serial bombings in 1993, blamed on the city's Muslim crime syndicates, killed 260 people and injured hundreds.

(Reporting by New Delhi and Mumbai bureaux; Writing by Simon Denyer; Editing by Alistair Scrutton and Sanjeev Miglani)