LONDON - WORLD stock markets were rattled on Monday as recession spread to Japan, overshadowing a weekend summit in Washington that was aimed at calming the economic crisis, analysts said.

Leaders from the Group of 20 rich and emerging nations pledged to work together to restore global growth and overhaul the world's financial system, but stopped short specific measures such as coordinated stimulus spending.

Investors gave a lukewarm response and focused instead on global recession after news that Japan's economy shrank for two straight quarters - the technical definition of a recession.

'The global economy is in recession', said Royal Bank of Scotland economist Robert Lind in reaction to the Japanese data.

'Continuing frailty in financial markets, much weaker growth and sharply lower inflation could trigger concerns about a protracted slump'.

Despite the gloomy news, Tokyo's stock market closed up 0.71 per cent on Monday as investors hunted for bargains, dealers said.

In early morning European trade, Frankfurt rose 0.38 per cent and Paris added 0.48 per cent, while London fell 0.08 per cent. All three markets had opened with slight losses.

Markets showed little enthusiasm for a vague pledge on Saturday from Group of 20 (G20) leaders to join forces to galvanise growth and overhaul the world's financial architecture, analysts said.

Many market players had been hoping for more specific steps to try to prevent the worst financial crisis in decades pushing the global economy into a long and deep recession.

'The muted response of financial markets to the outcome of the G20 meeting suggests that little was priced in terms of expectations for concrete policy measures', said Barclays Capital analyst David Woo.

Elsewhere in Asia, Manila lost 1.9 per cent, Seoul shed 0.9 per cent, Sydney fell 2.5 per cent and Taipei erased 0.29 per cent.

Japan's economy contracted by 0.1 per cent in the third quarter, or three months to September, after shrinking 0.9 per cent in the second quarter as the international banking crisis took its toll, official data showed.

That marked the first Japanese recession in seven years as the chronic financial crisis mauled the country's export-dependent economy.

In the foreign exchange market, the yen strengthened as risk-averse investors, despite news of a Japanese recession, sought shelter in what they saw as a safe currency.

Hong Kong share prices closed 0.1 per cent lower, but the fall was capped by the expectation that China may cut interest rates this week, dealers said.

Japan joins Germany and Italy on the list of major economies that are now officially in recession, despite emergency steps by world powers to try to stem months of turmoil on financial markets.

Before the weekend, it also emerged that the 15-nation eurozone entered recession for the first time ever, after shrinking in the second and third quarters of 2008.

'The global economy has slowed abruptly in recent months', added Mr Lind.

'As the US banking system came close to collapse in September, problems in the financial sector spread decisively to the real economy. Europe and Asia quickly followed'.

'Though a determined policy response appears to have prevented a more disastrous outcome, there will be longer-lasting implications for activity'.

'Most of the major economies have slipped into recession and this weakness will persist into 2009'.

Major companies around the world continued to feel the pain from a financial crisis that began with a wave of defaults on US subprime, or risky, mortgages and developed into a full-blown credit crunch and global economic slump.

The parent companies of China Eastern Airlines and China Southern Airlines are expected to each get state aid of three billion yuan (S$669 million) to tide them over hard times, state media reported on Monday.

German Chancellor Angela Merkel was due to hold crisis talks with executives at car maker Opel, which has said it needs state guarantees for its bank loans as its US parent company General Motors struggles to stave off bankruptcy.

Investors were meanwhile underwhelmed by the outcome of a Washington G20 summit on the financial crisis.

'In the midst of an emergency crisis, to have a statement that reads 'We will cooperate with each another' is all but meaningless', said Mr Daisuke Uno, chief strategist at Sumitomo Mitsui Banking.

'Market sentiment has soured and with all eyes back on the theme of global recession', he said.

KUALA LUMPUR
Malaysian share prices closed up 0.3 per cent on Monday amid lacklustre trade and a weakened market, dealers said.

The Kuala Lumpur Composite Index was up 2.41 points to close at 884.06.

HONG KONG
Hong Kong share prices closed 0.1 per cent lower on Monday, tracking the latest tumble on Wall Street, dealers said.

The benchmark Hang Seng Index closed down 13.13 points at 13,529.53.

Turnover was light at 39.84 billion Hong Kong dollars (S$7.8 billion).

Analysts said the fall was limited by the expectation that China may cut interest rates this week.

SHANGHAI
Chinese share prices closed up 2.22 per cent on Monday, led by airlines following reports that two of the nation's biggest carriers could get government aid, dealers said.

The benchmark Shanghai Composite Index, which covers A and B shares, closed up 44.05 points to 2,030.49 on turnover of 90.2 billion yuan (S$20.1 billion).

The Shanghai A-share index added 46.23 points, or 2.22 per cent, to 2,132.91 on turnover of 89.9 billion yuan, while the Shenzhen A-share index gained 19.44 points, or 3.39 per cent, to 593.14 on turnover of 41.5 billion yuan.

TOKYO
Japan's Nikkei stock index closed up 0.71 per cent on Monday as investors hunted for bargains, despite official data showing the country is in recession.

The benchmark rose 60.19 points to 8,522.58, after climbing 2.72 per cent on Friday.