European pessimism grows; U.S. jobs, retail slump

By Matt Daily and Richard Hubbard

NEW YORK/LONDON (Reuters) - Economic weakness in Europe worsened and U.S. jobless rolls swelled as disappointing sales from Wal-Mart, the world's largest retailer, and other retailers on Thursday showed that consumers are still wary about opening up their pocketbooks in an uncertain economy.

The Bank of England, which cut its key interest rate to a historic low of 1.5 percent, said the world economy appeared to be undergoing an unusually sharp and synchronized downturn.

"Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time," the British central bank said in a statement.

U.S. unemployment benefit rolls climbed to a 26-year high in the last week of December, with 4.61 million people in the world's largest economy drawing aid, up 101,000, and well above forecasts for a total of 4.5 million.

Still, the number of U.S. workers filing new claims for unemployment benefits showed an unexpected decline of 24,000 from the previous week, government data showed. The weekly claims data did little, however, to ease fears that a more comprehensive government report on Friday could show the biggest drop in payroll numbers in 59 years.

Wal-Mart Stores Inc, posted weak December same-store sales and cut its quarterly earnings forecast as other U.S. retailers also warned that earnings would be worse than expected in the current quarter, which includes the key 2008 holiday shopping season.

The Federal Reserve confirmed that U.S. households, the engine of the nation's economy, have pulled back on spending, with consumer borrowing dropping by a record $7.94 billion in November, or 3.7 percent.

"The message is the weak economy is hurting the job market and that will affect consumer spending going forward. There is a serious snowballing process underway," said Pierre Ellis, senior global economist at Decision Economics in New York.