By Tomasz Janowski and Ralph Boulton

SINGAPORE/LONDON (Reuters) – China cut its benchmark lending and deposit rates on Monday and Japan warned it was sliding deeper into a recession that is encroaching on the global economy, closing factories and throttling trade.

British central bankers said interest rate cuts alone would not cure growing global economic ills that began with a crisis in the U.S. housing market.

But figures showing the deepest plunge on record in euro zone industrial new orders were sure to fire expectation of more interest rate cuts in Europe.

The People’s Bank of China (PBOC) announced its fifth cut in lending rates since mid-September, underlining the scale of the problem for the world’s fourth-largest economy and the only major one that is still growing.

The cost of one-year bank loans would fall to 5.31 percent from 5.58 percent, while the benchmark one-year deposit rate falls to 2.25 percent from 2.52 percent.

The cut in interest rates takes effect on Tuesday, the central bank said on its website (www.pbc.gov.cn).

The world’s second biggest economy Japan, which slashed interest rates to a rock-bottom 0.1 percent last week, reported the biggest ever drop in exports in November.

Japan’s industrial c10:27 22Dec08 RTRS-UPDATE 1-Euro zone Oct ind orders plunge, underline recession

The world’s top carmaker, Toyota Motor Co forecast its first ever group operating loss — of 150 billion yen ($1.7 billion) — due to a collapse in global demand and a crippling rise in the yen. [nT299128]

Interest rates were lowered almost to zero in the United States and Japan last week, but British central bankers — who have cut rates by three percentage points since October — warned that policy alone would not solve the financial crisis.

Bank of England Deputy Governor Sir John Gieve said Britain needed some form of new policy tool beyond the “blunt instrument” of interest rates and his colleague, Tim Besley, said monetary policy was not enough to bring Britain’s flagging economy back to life.

“We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy … and individual supervision and regulation of individual banks,” Gieve told the BBC, without elaborating.

Traders and analysts polled by Reuters believe the Bank of Japan will early next year return to a policy, which it abandoned only in 2006, of flooding banks with cash to inflate the economy.

The U.S. Federal Reserve already ventured into that territory last week, slashing its benchmark funds rate to a range from zero to 0.25 percent and promising to supply banks with unlimited cash and keep rates low over an extended period.

IRISH BAILOUT  Continued…