Underscoring the tightening grasp of the downturn, Bank of Japan Governor Masaaki Shirakawa warned on Monday economic conditions were deteriorating fast, and Japanese firms were finding it increasingly hard to secure credit.

"Sluggishness in economic activity has increased rapidly. Overseas economies are experiencing the same kind of rapid change," Shirakawa said in a speech.

Euro zone manufacturing activity sank to a record low in November and the outlook was equally grim.

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey's 11-year history and way below the 50 mark that separates expansions from contraction.

The euro zone was officially declared in recession this month following a second quarterly contraction in economic output. Analysts do not see the economy growing again until the third quarter next year -- and then only marginally.

The financial crisis that began with a US housing market collapse last year and escalated into a full-blown global downturn has already knocked several big economies into recession including Germany, Italy and the euro zone. Most economists believe the United States and UK will soon follow.

Similar surveys from China showed its manufacturing industry slumped in November as new orders, especially from abroad, tumbled.

The BoJ said it would hold an emergency policy meeting on Tuesday to examine measures to help corporate finance.

Japan's economy minister was gloomier even than Shirakawa.

"We are moving to the next phase of shrinking consumption -- some call it deflation -- production going down and prices going down," Economy Minister Kaoru Yosano told the Financial Times in an interview published on Monday.

RATE CUTS COMING

Stocks slid, with investors caught between aggressive steps by central banks to alleviate the sharp global downturn and increasingly grim economic data.

Japan's Nikkei share average dropped 1.4 per cent and European stocks were down a similar amount in early trade.

Inflation in Thailand, South Korea and Australia plunged in November in synch with a global retreat, giving central banks room to slash interest rates further to soften the blow from the worst financial crisis in decades.

Central banks in Britain, the euro zone, Australia and New Zealand are expected to cut borrowing costs sharply this week to resuscitate demand. The average benchmark rate in 10 of the world's top economies has been reduced by 144 basis points so far in 2008 to the lowest in three years.

Expectations for more rate cuts in Britain were underlined by the UK's PMI index showing manufacturing shrank at a record pace in November after a collapse in new orders.

The headline manufacturing PMI figure plunged to 34.4 from October's downwardly revised 40.7 -- both the lowest level and the biggest one-month fall in the series, which started in 1992.

Australia's central bank is expected to almost certainly slash its benchmark rate by at least 75 basis points on Tuesday on top of 200 basis points of cuts since early September, with a bigger move seen as a strong possibility.

US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both make speeches later in the day.

RAZOR-THIN MARGINS

German retail sales unexpectedly fell in October, dealing a blow to hopes that consumer spending would help to cushion the effects of a marked slowdown in global demand for German goods.

Sales fell by 1.6 per cent month-on-month in real terms in October, sharply undershooting the consensus forecast for a 0.5 per cent rise.

In the United States, shoppers tried to take advantage of rock-bottom sales prices over the holiday weekend, traditionally the start of the busiest period of the year for US retailers.

However, the weekend of activity does not necessarily augur well for retailers' bottom line.