The International Monetary Fund (IMF) is to offer a $16.5bn (£10.4bn) loan to Ukraine and has agreed an as yet undisclosed package with Hungary.

Ukraine is to receive the loan to help it “maintain confidence and economic and financial stability”, the IMF said.

The country has seen its stocks, banks and currency badly shaken by the global credit crunch.

The “substantial financing package” for Hungary is due to be finalised in the next few days, the IMF said.

It is conditional upon Hungary adopting “strong policies” and will be drawn from the IMF, the EU, and some individual European governments “together with regional and other multilateral institutions”, IMF Managing Director Dominique Strauss-Kahn said in a statement.

“The policies Hungary envisages justify an exceptional level of access to fund resources,” he added.

“Ukraine and Hungary are trapped in the vice of the last phase of deleveraging, or the reduction in credit being provided by banks and other investors, and the decline in the real economy” Robert Peston BBC Business Editor

The BBC’s Sarah Morris in Washington says this suggests the loan is likely to be one of the biggest the IMF has ever made.

Hungary’s currency, the forint, has seen a sharp fall, stocks have tumbled and the country has cut its growth forecast for 2009.

Currency plunge

Internal political turmoil has delayed economic development in Ukraine and the IMF loan depends on the ex-Soviet state being able to balance its budget and make reforms to its banking sector.

Last week, the IMF said it was to give Iceland a £2.1bn loan as its banking system came close to collapse.

Pakistan and Belarus are also in talks about accessing IMF funding.

“The authorities’ programme is intended to support Ukraine’s return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation,” said Mr Strauss-Kahn.

“At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible.”

Easy credit and a property boom have seen Ukraine’s capital Kiev expand rapidly but the global downturn has seen investors and those willing to offer loans withdraw.

Ukraine also relies heavily on steel, but prices have collapsed and its currency, the hryvnia, has fallen sharply in the past two weeks.

News reported by The BBC

Japan’s industrial output slid by a greater-than-expected 2% during June, adding to fears that the country could be heading into a recession.

The government confirmed that output was softening, having previously said that it was generally flat.

The figures came as the International Monetary Fund (IMF) predicted Japan was heading for an economic slowdown.

But the IMF said the Bank of Japan could afford to hold interest rates steady to see how the economy develops.

“We do see the economy growing to a virtual standstill in the second quarter of the year and rather weak growth in the second half of the year before beginning to recover next year,” said Daniel Citrin from the IMF.

Recession fears

But some analysts see the weak output figures as indicating that the economy will contract, rather than remaining at a standstill.

The data “is quite bad and suggests the the Japanese economy is likely slipping into a recession,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The government said its survey of manufacturers suggested output would decrease by 0.2% in July and by another 0.6% in August.

The major concerns for Japanese manufacturers are rising commodity prices and the weakening of the economies of some of its main customers.

The sectors that were mainly responsible for June’s slowdown were transport and general machinery.

“Firm demand from overseas economies has been supporting production but as exports weakened in June, we can no longer count on it,” said Mr Minami.

News reported by The BBC

Oil prices have tumbled to seven-week lows amid concerns that the slowing US economy will weaken demand.

US sweet, light crude fell $2.23 to settle at $123.26 a barrel – more than $20 off their peak earlier in July, when prices reached a record $147.27.

Brent crude in London also fell, dropping $1.92 to $124.52.

The oil market has been volatile as traders assess whether there will be enough supply to meet demand, with some predicting further price falls.

Analysts at Lehman Brothers predict oil prices could drop below $100 by the end of the first quarter of 2009.

But others are sceptical.

“Nothing in the fundamental drivers has changed,” said Harry Tchilinguirian, an oil analyst at BNP Paribas.

Volatile market

Since last September, traders have been betting that the need for oil from economies, such as China, would continue to power the demand for oil.

Earlier this month, the International Monetary Fund (IMF) upgraded its economic forecasts for these countries.

At the same time, tensions between politically unstable oil-producing nations and the West sparked fears that supply would be constrained.

The weakening US currency has also encouraged investors to switch into commodities, which have been seen as a more attractive investment as the US economy falters.

A slight rebound in the dollar after a smaller-than-expected decline in new housing sales helped to give oil prices some relief, analysts said.

News reported by The BBC