NEW YORK/LONDON, Oct 31 (Reuters) - Japan cut interest rates for the first time in seven years on Friday, expecting severe stress in the global economy to persist, while UK banking giant Barclays said it was raising $12 billion in capital.
In the United States, there was more evidence of a slowdown in a Commerce Department report that showed consumers cut monthly spending for the first time in two years in September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten. For details, see .
Interbank lending rates fell sharply, suggesting that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.
But stock markets fell across the globe, with major indices headed for their worst month ever, and the dollar and the yen rose as investors moved away from risky assets.
The Bank of Japan's move followed a rate cut from the U.S. Federal Reserve earlier this week. The European Central Bank and the Bank of England are expected to do the same next week.
In the euro zone, inflation fell to 3.2 percent year-on-year in October, the European Union's statistics office said, data likely to ease any concerns at the ECB about rising prices.

Fallout from the crunch continued to spread on Friday, with Barclays saying it planned to raise 7.3 billion pounds ($12.06 billion) in additional capital from outside investors including Gulf states Qatar and Abu Dhabi.
Earlier this month, Barclays said it wanted to raise capital but would raise it privately rather than take UK government cash, as rivals Royal Bank of Scotland, Lloyds and HBOS are doing.
"There has been a significant shift in the availability of capital and economic power in the world over the last five years and we're ensuring we're aligned with those changes," said John Varley, Barclays' chief executive.
Following a different strategy, Commerzbank is interested in a state capital injection that could see Germany take a stake in the country's second-biggest bank, according to sources familiar with the situation.
Mizuho Financial Group became the second major Japanese bank this week to cut its full-year net profit forecast by more than half because of bad loans and losses in its equity portfolio.
The global downturn has come hard on the heels of the credit crunch, the worst financial crisis since the Great Depression, with investors facing what Japanese Prime Minister Tara Aso called "a harsh storm seen only once in 100 years".
There were mixed signs about the credit crunch. Interbank rates -- the cost banks charge to lend to each other -- fell.
But at the ECB overnight deposits from banks soared to a new record, suggesting banks still preferred to deposit money with the central bank than lend to each other.
Equity markets fell again, with Japan's Nikkei closing down 5 percent on disappointment at the size of the interest rate cut. China's main stock index ended October with its biggest monthly fall since 1994.
European shares were off 0.5 percent and on Wall Street, the Dow, the S&P 500 and the Nasdaq all opened moderately lower. The Dow was headed for its worst month in more than two decades.

The Bank of Japan cut its benchmark overnight call rate to 0.30 percent from 0.50 percent, a slightly smaller reduction that the quarter point many had expected.
A 4-4 vote on the policy board meant the central bank governor had to cast the deciding vote.

"At a time of extreme financial uncertainty and volatility, to have a policy board so evenly split is hardly reassuring," said Glenn Maguire, Asia Pacific chief economist with Societe Generale in Hong Kong. "Whatever the desired outcome, the fact that the board was so evenly split jeopardizes that outcome."
The rate reduction was the latest in a global series as central banks move rapidly to try to cushion growth now that interbank lending rates have started falling.
The average benchmark interest rate in the Group of Seven countries has dropped to 2.36 percent, the lowest since April 2005, from 4 percent in August 2007 when credit markets began imploding because of mounting subprime mortgage defaults.
Economists widely expected Australia, Britain and the euro zone to cut rates next week.
The economies of Britain, Europe, Canada, Japan and the United States are contracting. The latest growth data showed the U.S. economy shrank in the third quarter, three months that saw the collapse of the Wall Street investment bank model.
Business activity in New York City shrank in October, contracting for the ninth time in 10 months, according to an industry report released on Friday.
Companies are already feeling the pain.
Tech bellwether Intel Corp said the financial crisis could have a negative impact on its business.
In the troubled auto sector, a deal to merge General Motors Corp and Chrysler LLC has hit an impasse after the Bush administration ruled out funding for it, according to Reuters sources.
In Japan, Nissan Motor and Suzuki Motor issued profit warnings.
The South Korean government is considering $7.3 billion in additional spending to support domestic demand, according to a local business paper, as the worst fears appeared to have dissipated about a meltdown in Asia's fourth-largest economy.
($1=.6054 Pound)

(Reporting by Reuters bureaus worldwide; Editing by Jonathan Oatis) Keywords: FINANCIAL/ tf.TFN-Europe_newsdesk@thomsonreuters.com cmr

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