Chances of a recession in the US escalated after Citigroup and Merrill Lynch reported massive losses and equally staggering writedowns related to the housing sector meltdown and stressed credit markets. The two Wall Street giant also received fresh cash infusion from global investors. Citigroup also slashed its dividend and announced plans to lay off employees. Both Citigroup and Merrill Lynch CEOs called the results clearly unacceptable, and vowed to lift the companies out of the current dire situation.

Quarterly net profit at JPMorgan Chase fell by 34% compared with a year ago, and it announced subprime-related write-downs totaling US$1.3bn. Washington Mutual reported its first quarterly loss since 1997 after writing down the value of its home mortgage unit and setting aside US$1.5bn to cover bad loans. Wells Fargo reported fourth-quarter net income fell 38%, and said it was bracing for a consumer slowdown in 2008. Ambac Financial and MBIA, the two biggest US bond insurers, slid on concern that their AAA credit ratings will be revoked.

Housing starts and building permits both fell to new multi-year lows in December. Construction on new homes fell 14% in December to a seasonally adjusted annual rate of 1.01mn, the slowest building pace in more than 16 years, the Commerce Department reported. Building permits, a sign of future construction, declined by the most in 12 years, suggesting that the housing slump will deepen as it enters a third year. There were a record 193,000 completed new homes on the market for sale at the end of November, and builders were typically facing a 6.2 month wait to sell homes after they are completed.

As the pall of gloom over Wall Street darkened, Federal Reserve Chairman Ben Bernanke, President George W. Bush and top congressional leaders called for an immediate fiscal stimulus package to prevent the world's biggest economy from slipping into a recession. Bush held a conference call with Democratic and Republican lawmakers and discussed the broad contours of what he would like to see in a stimulus plan. Bush said he favors personal income tax rebates, tax breaks for businesses and extensions of unemployment insurance. Meanwhile, Fed chief Bernanke told a congressional committee he supported the idea of a short-term fiscal stimulus measure. A proposal in the range of US$100-150bn would help, Bernanke said, adding it was critically important that any legislation be designed to kick in quickly.