Japan slipped to the brink of deflation and inflation in Europe slid closer to zero, underlining a threat to the world economy before next week's G20 summit which is supposed to produce a cure for the crisis.
Policymakers from the Group of 20 leading wealthy and developing nations will also plan tougher regulations to ensure that mistakes that led to the banking crisis are not repeated.
But resentment is rising about how catastrophic errors in the boardrooms of the West are hurting the poor. Brazil's president attacked irrational behavior of white and blue-eyed people and thousands are expected to protest before the G20 meeting in London, demanding politicians Put People First.
President Barack Obama is set to quiz leaders of the biggest U.S. financial institutions on Friday about the economy and their businesses as his administration seeks broader power to regulate the financial system.
Global shares paused for breath on Friday at the end of a week that saw them gain nearly 7 percent on tentative hopes of economic recovery, while oil slipped below $54 a barrel after touching a 2009 high.
Recession plus a slide in oil prices pushed Japanese consumer price inflation to zero in February. Retail sales also fell more than expected, evidence that slumping global appetite for Japanese exports is hurting the world's second-largest economy.
Japan is facing consumer price deflation, said Akira Maekawa, a senior economist at UBS Securities. Japanese companies are still producing more than consumers want to buy.
A small drop in some consumer prices does no great harm. But significant broad-based falls can inflict severe economic damage, as personal and corporate debt piles grow in real terms and consumers postpone spending, awaiting further price falls.
European policymakers have largely played down the risk of deflation, but data from German states on Friday showed that annual inflation is falling to very low levels.
In an early sign of the broader trend in the euro zone, a number of German states reported on Friday that consumer prices fell between 0.2 and 0.3 percent this month. Annual inflation rates ranged from just 0.2 percent to 0.8 percent and one state reported its lowest rate in 22 years.
But Alexander Koch, an economist at Unicredit, doubted true deflation would grip Germany. We expect to be heading for zero by mid year. But the inflation rate will only briefly go below zero because of the recent increase in oil prices, he said.
The wider euro zone reports inflation data next Tuesday. Economists expect the annual rate to fall under 1 percent in March and sink further in the next few months.
That is well under the European Central Bank's 2.0 percent ceiling, opening the way for it to cut interest rates at its monthly policy meeting on Thursday. Economists expect it to lower the main rate by half a percentage point to 1.0 percent.
STRUGGLING TO STIMULATE
Britain's economy slowed even more sharply than expected in the last three months of 2008 as construction output plunged, data showed on Friday. GDP fell 1.6 percent in the fourth quarter, the sharpest decline since 1980.
Many Britons are saving any spare money they have rather than spending it. Households have been helped by the cuts in interest rates and are reluctant to spend because of the economic climate, said Philip Shaw, economist at Investec.
Global policymakers have been struggling to stimulate economic growth, cutting rates to close to zero in many big economies, raising infrastructure spending and buying assets from banks and companies to pump more money into the system.
But German Finance Minister Peer Steinbrueck warned on Friday of trouble if governments did not respect the EU budget deficit limit after the worst of the crisis had passed.
If it is not taken seriously, I am telling you, the euro will have trouble one day in terms of its own credibility and stability, he told parliament.
British Prime Minister Gordon Brown hopes to persuade his fellow G20 leaders at the summit on April 2 to agree on ambitious spending. But his own central bank governor, Mervyn King, has questioned how much Britain can borrow to fund this.
Speaking in Brazil on Thursday, Brown said Britain must not rule out taking action needed to boost growth. But his host, President Luiz Inacio Lula da Silva, gave an uneasy reminder of resentment growing in poorer nations.
(It is unfair) that the (poor) be the first to pay the bills of a crisis created by the rich -- not by any blacks, by any Indians, or by any poor, said Lula.
This is a crisis fomented by the irrational behavior of white and blue-eyed people, who before the crisis seemed to know everything, said Lula, who has often blamed the United States for causing the global crisis by practicing casino capitalism.
FINANCIAL FOOLS DAY
On Saturday big crowds are expected to march in a Put People First protest through London, in what police expect will be the largest and most organized G20 demonstration.
A Financial Fools Day parade is also likely to converge London's financial district on Wednesday.
As the bankers continue to cream off billions of pounds of our money let's put the call out -- reclaim the money, storm the banks and send them packing, said a statement posted on a website by the anti-capitalist Wombles group.
On the markets, Japan's broad TOPIX ended down 0.3 percent on Friday but finished the week 7.8 percent higher -- its biggest weekly gain since 1997. We've hit the bottom, we're making our way up, said Bell Potter Securities private client adviser Stuart Smith in Australia.
European stocks slipped 0.6 percent toward the end of a good week. Cutting away the rhetoric and hyperbole, if you have more buyers than sellers, markets will almost certainly head north, said Chris Hossain of ODL Securities.
(Additional reporting by Sebastian Tong, Noah Barkin and Reuters bureaus around the world; Writing by David Stamp; Editing by Victoria Main)