* Japan business sentiment suffers sharpest drop since 1970s * Bank of Japan sees economy shrinking in fiscal 2009/10 * Asian markets buoyed by hopes of rescue for U.S. automakers * China industrial output growth at lowest in 9 years * Hu: China's employment situation "very serious" in 2009 (Adds Bush comments, paragraphs 3-4) (For full crisis coverage, double click here [nCRISIS]) By Leika Kihara TOKYO, Dec 15 (Reuters) - Japanese business sentiment has suffered its sharpest crash in three decades, a Bank of Japan survey showed on Monday, and the central bank said no early turnaround was expected with the economy set to shrink next year. But markets rallied despite the gloomy news from Asia's biggest economy, buoyed by expectations that the White House would step in to prevent the collapse of the "Big Three" U.S. automakers after the Senate's rejection of a bailout. President George W. Bush told reporters aboard Air Force One on a flight from Iraq to Afghanistan that while some funds earmarked to shore up the U.S. financial industry could be diverted to save the automakers, no announcement was imminent. "We're not quite ready to announce that yet," he said, adding that a decision would not take long. [ID:nN14461208] Last week's collapse of bailout talks in the Senate sent world markets reeling as investors feared another ugly turn in a global crisis that began last year with the collapse of U.S subprime mortgages and which has now sent major economies, including Japan, into recession. The Bank of Japan's tankan survey gauging big manufacturers' sentiment fell to minus 24, slightly worse than expected, from minus 3 the previous quarter. It was the biggest fall since the oil crises of the 1970s and the bleakest outlook since 2002, when Japan was recovering from a slump sparked by a banking crisis. The survey pointed to more economic gloom ahead. "The extent of the worsening outlook for March is a bit shocking," said Susumu Kato, chief economist at Calyon Capital Markets Japan. "The figures were within expectations but the outlook for March is seen worsening further. Thus, it's hard to predict the bottom of the current economic cycle." Bank of Japan Governor Masaaki Shirakawa told the Financial Times the Japanese economy may contract in the year to March 2010. The central bank had previously forecast a modest recovery with 0.6 percent growth in the next fiscal year. [ID:nTKU003243] "Until recently, the Japanese economy was relatively immune from turbulence in credit markets overseas. But the picture changed after the collapse of Lehman Brothers," Shirakawa said.

Source