WASHINGTON - A REPORT on Thursday suggested the world economic will contract in 2009 for the first time in decades, the latest in a spate of bleak news as the US auto industry's fate remained in limbo.

The European Central Bank meanwhile extended its offer for unlimited lending to banks in an effort to ease the credit squeeze that is choking economic activity.

The Institute of International Finance (IIF), a Washington-based association representing more than 375 of the world's major banks and financial institutions, projected the world economy would shrink 0.4 per cent in 2009, after a 2.0 per cent gain this year.

'It should be emphasised that an overall contraction in the global economy is a truly weak outcome, and the first time this has happened in the post-1960 period,' the IIF said in its monthly Global Economic Monitor report.

Mr Charles Dallara, the managing director of the IIF, called it 'the most severe, globally synchronised recession in modern economic history.'

Mr Philip Suttle, the IIF macroeconomic analysis director, said that data as far back as the early 1950s do not show a contraction in the world economy.

The IIF said that the mature economies already gripped in recession - the United States, the 15-nation eurozone and Japan - would contract a hefty 1.4 per cent amid the worst financial crisis since the Great Depression.

Those advanced economies were seen growing a mere 0.9 per cent this year as the global credit crunch that erupted in August 2007 flared in mid-September with the collapse of Wall Street investment bank Lehman Brothers.

Another report showed economic growth in Latin America will be cut by more than half in 2009 to its lowest rate in six years due the global financial crisis.

The Economic Commission for Latin America and the Caribbean (ECLAC) reported regional growth is forecast to drop to 1.9 per cent, a sharp recast of earlier data forecast by the group.

This is a significant drop from the 4.6 per cent growth seen in 2008, the group said.

US President George W. Bush said meanwhile he was determined to resolve the crisis surrounding ailing US automakers before he left the White House, with 'orderly bankruptcy' an option being considered.

'I haven't made up my mind yet,' Mr Bush told a conservative think-tank, the American Enterprise Institute. 'The autos obviously are very fragile and I have laid out a couple of principles'.

'I am worried about a disorderly bankruptcy and what it would do to the psychology and the markets, they're beginning to thaw but there is still a lot of uncertainty,' he said.

'I am also worried about, you know, putting good money after bad.'

As Mr Bush faces pressure to act before the Christmas and New Year holidays, White House officials said bankruptcy was one of the options being considered, adding that a decision on what to do was close.

Asked if an orderly bankruptcy was one of the options for the embattled industry which has asked for government bailout, White House spokesman Dana Perino said 'yes'.

A managed bankruptcy as opposed to letting the auto manufacturers slide into an uncontrolled, unstructured collapse was in a 'spectrum of options', she said, adding 'we are very close' to a decision.

In Europe, the ECB said it would keep providing unlimited amounts of cash in operations that underpin eurozone lending at fixed rates aimed at unblocking key interbank markets.

The funds help commercial banks maintain minimum reserves needed to underpin lending to companies that make up the broader eurozone economy.

The money markets froze when banks became wary of lending to each other after the US market for high-risk, or subprime, mortgages collapsed in mid-2007, and locked tighter following the failure of the US investment bank Lehman Brothers in mid-September.

The ECB announcement came two days after the US Federal Reserve slashed its base rate to virtually zero and pledged more steps to ease the credit crisis.

EU Economic Affairs Commissioner Joaquin Almunia said that negotiations on an emergency loan package to help Latvia deal with the financial crisis were in the final stages.

'We have negotiated with the Latvian authorities a program I think is good and at the same time a tough program and now we are discussing among those who will contribute to the package,' he said.

The International Monetary Fund also said on Thursday that talks with Latvia on a loan to help the country cope with the global financial crisis were progressing and an announcement could come soon. -- AFP