Japan is bracing itself for a recession that could be as bad as the decade-long stagnation of the 1990s after revealing worse than expected economic data.

Factory output was down 3.1% in October and consumers scaled back their spending.

The bleak Japanese data followed China's warnings yesterday that its economy is in a sharp slowdown that threatened its stability, while eurozone business sentiment hit a 15-year low, provoking calls for a cut in the region's interest rates.

Meanwhile, India is expected to report that third-quarter growth hit a four-year low.

With the US holiday shopping season kicking off today, businesses and investors are bracing for more grim news. The concern is that even deep discounts offered by struggling US retailers will fail to lure shoppers fearing for their jobs and squeezed by rising debt.

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

Central banks 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 stalled economies.

China's hefty 108 basis points rate cut earlier this week, the US Federal Reserve's plan to commit an extra $800 billion (£518.3 billion) to rescue battered credit markets and hopes for a government bailout of US carmakers, helped lift world stocks to two-week highs this week.