* US Q3 contraction confirmed, consumer spending plunges
* Britain contracts more than first thought in Q3
* New Zealand downturn deepens
* Spain says recession has struck there
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By Emily Kaiser and Mike Peacock
WASHINGTON/LONDON, Dec 23 (Reuters) - The world's economies limped towards Christmas on Tuesday, with a U.S. contraction confirmed, Britain shrinking more sharply than thought and Spain and New Zealand languishing in recession.
The U.S. economy shrank an unrevised 0.5 percent in the third quarter, official data showed. Consumer spending plunged 3.8 percent, the biggest drop since 1980.
"I think the fourth quarter contraction will be more severe ... and the first quarter of next year will even be worse," said Roy Williams, CEO of Prestige Wealth Management Group in Pennington, New Jersey.
Britain, Spain and New Zealand added to evidence that global stimulus measures, bank bail outs and interest rates heading for zero may not prevent the worst downturn in decades.
The British economy shrank by 0.6 percent in the third quarter, the worst quarterly decline since 1990 and worse also than the earlier 0.5 percent estimate.
"It really does paint an exceptionally gloomy picture about the speed with which the UK economy has lapsed into recession," said Matthew Sharratt, UK economist at Bank of America.
New Zealand's economy declined by a seasonally adjusted 0.4 percent in the third quarter, the biggest drop in eight years, following a 0.2 percent fall in Q2.
And Spain succumbed to recession for the first time in 15 years. Spain's ISA activity indicator, which tracks gross domestic product, contracted 1.5 percent year-on-year between October and December, according to Economy Ministry data.
"The ISA shows the trend, and the trend is that the fall in fourth quarter GDP is going to be steeper than in the third," a ministry spokeswoman said.
Italian consumer confidence fell for a third month running in December but French consumer spending rose unexpectedly in November, driven by purchases of household goods and despite a continued slump in car sales.
Analysts were not taking that as much of a ray of hope.
"At the moment, (French) consumer spending is the only thing that's holding up amid the crisis, because everything else is going down," said Alexander Law, chief economist at Xerfi.
Nonetheless, European stocks gained 0.8 percent, breaking a four-day losing run as investors bought banks, which have endured a battering this year.
U.S. stock futures pointed to a steady start on Wall Street.
MORE SPENDING, FEWER JOBS
Governments around the world have ramped up spending to try to cushion the blow of the worst financial crisis in 80 years, a policy underscored by a record $38 billion two-year note auction by the U.S. government on Monday.
The auction drew bids worth more than twice that amount, showing the government is so far having no trouble attracting buyers for its debt, even as yields drop below 1 percent.
Even more stimulus is on the way when U.S. President-elect Barack Obama takes office next month. His staff is discussing how much money Congress should authorise for a package that is likely to be well over $600 billion.
Governments should be ready to increase their spending on economic programmes if circumstances require it, the International Monetary Fund's chief economist Olivier Blanchard said in comments published on Tuesday.
"The coming months will be very bad. Halting this loss of confidence, providing stimulus and, if necessary, replacing private demand are essential if we want to prevent the recession from becoming a Great Depression," Blanchard told Le Monde.
Companies around the globe are facing evaporating demand, which has prompted many of them to slash jobs and investment.
U.S. heavy equipment maker Caterpillar Inc said on Monday it would cut white-collar pay by as much as half and offer buyouts to some employees as it looks to cut costs during what it characterised as "uncertain times."
Textron Inc, the world's largest maker of corporate jets, said it will eliminate 2,200 jobs worldwide.
China resorted to moral suasion to urge its companies to hold on to as many workers as possible and vowed to support important industries, as it faces the prospect of increasing unrest in the face of rising unemployment.
"Companies must not lay off workers easily," Premier Wen Jiabao said during a visit to carmaker Changan Group in the southwestern city of Chongqing, the official China Daily said.
"The automobile industry has a long industrial chain and it is an industry the government should strongly support," he said. (Editing by Jon Boyle)