NEW YORK (Reuters) - President-elect Barack Obama will name New York Federal Reserve president Timothy Geithner as his Treasury Secretary, major media reported on Friday, sparking a late-day stock market rally and helping assuage concerns about a power vacuum in Washington.

The reports by NBC News and the Wall Street Journal came with an hour to go in New York stock trading, turning a flat Dow into a 6.5 percent gain the day after the broader market slumped to an 11-year low amid signs of deep recession..

Geithner has overseen much of the financial industry based in New York and was active in the emergency measures taken by Fed Chairman Ben Bernanke and outgoing Treasury Secretary Henry Paulson to combat the world's worst financial crisis since the Great Depression. He was seen as a favorite of the markets.

"It is a brilliant pick, for no other reason than that it creates continuity in the middle of one of the greatest crises to ever face this country," said William O'Donnell, head of U.S. interest rate strategy at UBS Securities in Stamford, Connecticut.

But the crisis still afflicted the world economy. In Europe, new data showed euro zone demand plunged, and world central bankers considered the prospect of deflation as the Bank of Japan left its benchmark interest rate at just 0.3 percent, saying the road to recovery would be long.

The Geithner news even helped beleaguered banking giant Citigroup, whose stock recovered from a 35 percent fall to end down 20 percent, temporarily at least stopping a plummet over concerns the bank would sell major businesses to restore its health and investor confidence.

Chief Executive Vikram Pandit told employees he would not break up the company, whose board was meeting on Friday.

Geithner's appointment was not official -- NBC said Obama would formally name his economic team on Monday -- but it helped fill a void in the transition between the November 4 election and January, when the new president and Congress take over.

Obama's cabinet choices shaped up further with The New York Times reporting that Sen. Hillary Clinton had accepted the position of Secretary of State.

On Friday, House of Representatives Speaker Nancy Pelosi pledged support for a U.S. stimulus package and aid for sputtering U.S. carmakers.

Pelosi vowed congressional help for the auto industry, saying "doing nothing is not an option" and that she was prepared to call the House back into session in December.

Pelosi also told reporters that passage of a broad economic stimulus bill, including tax cuts, will be a top priority of the next Congress when it convenes in January.

The European Commission was working on its own stimulus plan that would include a significant budgetary expansion for European Union members, Commission President Jose Manuel Barroso said.

The Markit Eurozone Purchasing Managers composite index, which covers the manufacturing and services sectors, tumbled to a record low of 39.7 in November.

That added to expectations the European Central Bank will cut rates by at least a half percentage point when it meets in December.

PRESSURE ON OBAMA

U.S. commentators including former GE chief Jack Welch had urged Obama to name his Treasury Secretary and more clearly signal the economic policy he would enact upon taking over from President George W. Bush on January 20.

Some expressed concern the economy might otherwise deteriorate further, as it did during the transition from Herbert Hoover to Franklin Roosevelt in 1932 and 1933.

"Fear is going to take over. ... This 60-day period ... doesn't look a lot different than ... the transition from Hoover to Roosevelt," Welch told CNBC television.

Nobel laureate economist and New York Times columnist Paul Krugman characterized the 1932 transition period disastrous in part because "the outgoing administration had no credibility (and) the incoming administration had no authority."

"And the same thing is happening now," Krugman wrote in his Friday column.

Investment bank Goldman Sachs forecast more pain, estimating real U.S. gross domestic product would fall 5 percent on an annual basis in the current quarter, with unemployment reaching 9.0 percent in the fourth quarter of 2009.

A 5 percent contraction would be the largest since the first quarter of 1982, when the economy shrank 6.4 percent on an annualized basis.

Bank of Japan Governor Masaaki Shirakawa said he was on watch for the risk of deflation as Japan lapses into recession, although he did not forecast its return.

"The global economy is expected to experience a severe adjustment for some time," he told reporters.

(Reporting by Reuters bureaus around the world; Writing by Daniel Trotta; Editing by James Dalgleish)

By Daniel Trotta

Publié le 21 novembre 2008 Copyright © 2008 Reuters