TOPWRAP 10-Hopes rise for rate cuts; US consumers gloomy

* Wall St surges 10 percent, yen down vs dollar/euro

* Bank of Japan is considering rate cut - Nikkei

* U.S. consumer confidence plunges to record low

* Crisis-hit Iceland raises rate by 6 points to 18 percent

By Claudia Parsons

NEW YORK, Oct 28 (Reuters) - Hopes of interest rate cuts in the United States, Japan and Europe helped push heavily battered stocks higher on Tuesday and Wall Street surged 10 percent despite more gloomy news on the U.S. economy.

U.S. consumer confidence plunged to a record low in October amid signs the economy is sliding into a deep recession, threatening to pull the rest of the world with it.

The Nikkei business daily said the Bank of Japan was considering a 25 basis-point interest rate cut to underpin the economy, pushing the dollar and the euro up against the yen.

A cut would be the first BoJ easing since March 2001 and could curb the recent surge in the value of the yen, which in turn helped pummel Japanese stock markets. Nikkei futures jumped 14 percent after the report.

In the United States, the consensus among Federal Reserve watchers is for a half-point cut in rates to 1 percent on Wednesday, the lowest level since June 2004. It has already cut the benchmark federal funds rate to 1.5 percent from 5.25 percent over the past 13 months.

The Dow and the S&P 500 ended up more than 10 percent, a welcome relief after recent heavy losses.

A drop in closely watched rates on loans between banks was a hopeful sign, showing efforts by central banks to lower borrowing costs were making progress. But banks were still hoarding cash to offset losses on riskier assets and the pace of decline remained slow.

Iceland hiked interest rates massively in a desperate attempt to defend its currency from the global turmoil. The move will help secure aid from the International Monetary Fund, which is also crafting plans for Hungary and Ukraine as the crisis sweeps developing economies.

A U.S. Fed cut will be too late to save depressed U.S. consumer confidence, which plunged in October to the lowest in the 40-year history of the Conference Board survey. Companies slashed jobs and retirement savings evaporated during the month, which is on track to be the worst for Wall Street in more than 60 years.

"Consumers are completely shut down at this point," said Lindsey Piegza, a market analyst at FTN Financial. "They see no end in sight even with all the actions that the government has taken."

ECONOMY DOMINATES U.S. ELECTION

The economy dominates the U.S. presidential election which takes place Nov. 4. Republican presidential nominee John McCain and Democratic candidate Barack Obama traded attacks on each other's tax plans on Tuesday.

Polls show voters trust Obama more on the economy and he leads in national surveys and important swing states.

The current crisis has its origins in the bursting of the U.S. housing bubble and data showed prices of U.S. single-family homes continue to plummet, falling a record 16.6 percent in August from a year earlier.

In the embattled auto industry, General Motors Corp has asked the U.S. government for some $10 billion in an unprecedented rescue package to back its purchase of Chrysler LLC, sources familiar with the talks said.

At least four more U.S. banks signed up for the government's offer of a cash injection as part of a $250 billion bank recapitalization program.

High oil prices and improved refinery margins in the most recent quarter helped lift energy company earnings, but top U.S. refiner Valero Energy Corp said it would cut spending on expectations that demand will slow.

Whirlpool Corp, the world's biggest appliance maker, said it will cut 5,000 jobs. It posted lower than expected quarterly profit and slashed its 2008 earnings outlook.

The world's biggest mutual fund company, Fidelity Investments, said it was reviewing its costs and staffing following an industry report that said as many as 4,000 jobs, 9 percent of its workforce, could be cut.

The Bank of England said financial markets appeared to have priced in losses of $2.8 trillion from the credit crisis, equal to more than two years of U.S. corporate profits, but the BoE said actual losses may be much less than that.

Japanese stocks closed 6.4 percent higher on Tuesday -- but only after hitting a 26-year low. An early European rally lost steam and shares ended up 2 percent.

Japan restricted investor bets on falling share prices to try to end its market slide, and its prime minister delayed calling a parliamentary election to concentrate on averting recession in the world's second biggest economy.

RATE CUTS

Tiny Iceland, a surprisingly high-profile victim of the global credit crisis, raised interest rates by massive 6 percentage points to 18 percent, taking the opposite tack to most countries fighting the global financial crisis.

Iceland has been driven close to collapse by bank failures, and the central bank said the steep rate increase was part of a deal struck with the IMF for a $2 billion loan.

Governments have agreed to provide around $4 trillion to shore up banks and markets to ease the worst financial crisis in 80 years. The Bank of England said the efforts should calm the banking system but was cautious about the wider economy.

"The instability of the global financial system in recent weeks has been the most severe in living memory," said Deputy Governor John Gieve. "And with a global economic downturn under way, the financial system remains under strain."

Bank of England policy-maker Tim Besley warned, however, that the British economy was set to weaken further and interest rate cuts were not a magic bullet. (Reporting by bureaus in Europe, Asia and the Americas; Editing by Tom Hals, Gary Hill)