With the global downturn hitting automakers particularly hard, Toyota, the world's biggest, said it would shut all its factories in Japan for 11 days in February and March.

And as a further indication of how the crisis that began with bad housing loans in the U.S. is affecting all areas of the world, a state-run Chinese magazine warned of the risk of a wave of social unrest.

The Markit Eurozone Purchasing Managers' Index of around 2,000 key services companies, from banks to retail stores, fell to 42.1 in December from 42.5 in November -- a new low in the survey's 10-year history and, economists said, a cue for the European Central Bank (ECB) to cut interest rates further.

"Sharply contracting new orders, backlogs of work and employment reinforce belief that the euro zone faces an extremely difficult start to 2009," said Howard Archer, economist at IHS Global Insight.

A services sector survey for the UK also showed an eighth month of contraction, with the employment component dropping to a record low as firms resorted to redundancies.

A sharper than expected fall in euro zone inflation, to a 26 month low of 1.6 percent in December, further supported expectations of an ECB rate cut next week.

On the energy front, Russian gas supplies via Ukraine to southeast Europe and Turkey were halted on Tuesday in a sharp worsening of a pricing dispute between Moscow and Kiev, helping to push U.S. oil prices up 80 cents to near US$50 a barrel. Prices in the British gas market also climbed more than 10 percent.

But investors chose to focus on the positive, anticipating a new economic stimulus package worth up to 50 billion euros (US$67.4 billion) in Germany and an expected US$775 billion plan from U.S. President-elect Barack Obama to rescue the U.S. economy.

South Korea said on Tuesday it aimed to create almost 142,000 jobs this year through infrastructure and environmental projects, part of a five-year, US$38 billion plan to generate almost 1 million jobs.

Chile announced a US$4 billion stimulus package based on public spending on infrastructure, subsidies and tax rebates.

Hopes for a global economic recovery helped European and Asian shares rise for their sixth and seventh consecutive sessions, respectively, while the dollar climbed strongly against major currencies.

"Growing expectations for the administration of Obama are making investors that much more willing to take risks, and I think we're also seeing more buying by foreign investors," said Hideyuki Ishiguro, supervisor at the investment advisory department of Okasan Securities in Tokyo.

MSCI's All-Country World index has jumped 25 percent since hitting a five year low in late November.

Market optimism is running ahead of economic indicators, however, which remain poor.

Britain's Nationwide Building Society said house prices in the world's fifth-biggest economy fell another 2.5 percent in December to make 2008 the worst year on record.

Consumer morale slumped in December in both Britain and France as households worried about rising unemployment.