* German GDP shows biggest quarterly fall since unification

* G7 finance leaders gather in Rome to discuss global crisis

* Australia passes stimulus package after deal-making

* Markets react cautiously to hints of good news (For more on the global financial crisis, click on)

By Dave Graham and James Grubel

BERLIN/CANBERRA, Feb 13 (Reuters) - Germany, Europe’s biggest economy, registered its worst quarterly contraction since 1990 reunification on Friday, while Australia’s parliament pushed through a stimulus deal to tackle global crisis.

German GDP data, which shrank 2.1 percent quarter-on-quarter at the end of 2008, and a French prediction of a more than one percent contraction in 2009 help set a dismal tone for a meeting of G7 financial leaders in Rome this weekend.

The German Federal Statistics Office said the contraction was led by a decline in investment and net trade. Since 1990 Germany’s economy had never contracted by more than 1.2 percent in a quarter.

French Economy Minister Christine Lagarde said on Friday she expected 2009 to be a “difficult” year during which the economy would probably contract by more than 1 percent.

“The first quarter will be difficult ... We will have a difficult year,” Lagarde told RTL radio.

She was speaking the day after the statistics office said French gross domestic product contracted by 1.2 percent in the fourth quarter of 2008.

Economic recession, beginning with a banking crisis, is spreading quickly through all continents and undermining economies and threatening social order in developed and developing countries alike.

U.S PLANS DETAILED

More details emerged about plans to lift the U.S. economy out of recession, with a plan to subsidise mortgages raising hopes for a solution to the slump in the U.S. housing market which has reverberated around the world.

The U.S. Congress is due to vote on an economic stimulus bill later on Friday after Democratic leaders in both houses tied down final details of the deal, which includes about $507 billion in government spending and $282 billion in tax cuts.

While Congressional negotiators have agreed on the $789 billion stimulus plan for the world’s largest economy, financial markets remain worried by the perceived lack of detail in U.S. Treasury Secretary Timothy Geithner’s bank bailout proposal unveiled early this week.

Rescuing the banks is seen as crucial to economic recovery and a slowly emerging mortgage plan provided some late cheer on Thursday ahead of what was expected to be more dour offerings at the meeting G7 financial leaders in Rome this weekend.

Under the proposed U.S. mortgage plan, first reported by Reuters, mortgage companies would use a uniform eligibility test before a borrower becomes delinquent. Economies around the world suffered after a sharp rise in U.S. mortgage delinquencies crippled credit markets and led banks to shy away from lending.

Asian shares on Friday reversed three sessions of losses during which investors had sought safe havens, with hopes rising that governments around the world were coming up with measures to cushion the worst of the global downturn.

The MSCI index of non-Japan Asia-Pacific stocks rose 1.4 percent by mid-afternoon, reversing a 3.5 percent fall in the previous three sessions.

Japan’s Nikkei rose 1.5 percent, while stocks in Australia, Hong Kong, Singapore and Taiwan were all up about 1 percent, but doubts lingered.

“The bank and economic measures by the U.S. government so far have lacked details and that is a problem. What the market wants to know is how and by when the government will enact measures that prove to be effective,” said Takahiko Murai, general manager of equities at Nozomi Securities.

But the bad news on Europe’s economy, where Italy and the wider euro zone also report GDP figures on Friday, may dull the lustre.

AGGRESSIVE CUTS

Elsewhere last-minute deal-making saved Australia’s A$42 billion (27.4 billion) stimulus plan, with parliament passing the package after it was sweetened with about $1 billion in separate spending for Australia’s ailing rivers wanted by a key independent senator.

The senator had joined with opposition lawmakers to oppose the package, the biggest ever launched in Australia, on Thursday.

Australia, boosted by Chinese demand for its commodities, has so far avoided following the United States, Japan and leading European economies into recession, but has had to apply aggressive interest rate cuts and other measures.

The stimulus will be worth about 2 percent of gross domestic product in 2009 and 1.3 percent in 2010. Treasury estimates it will lift growth by 0.5 points this financial year and 0.75 percent in 2009/10.

The deal lifted the Australian dollar which climbed to $0.6560 from a low of $0.6446 earlier on Friday.

DEFLATION FEARS

With the Japan flirting with deflation, Bank of Japan Governor Masaki Shirakawa joined a growing chorus urging G7 finance leaders to take concrete steps to rescue the worsening global economy.

“The world economy is in a very severe situation at the moment, so I want (the G7) to frankly exchange views on economic conditions and the outlook and to discuss policy steps to help stabilise the world economy,” Shirakawa told reporters in Tokyo.

The G7 leaders will begin gathering after sobering economic news from Europe. Spain’s economy shrank 1 percent quarter-on-quarter in the last three months of 2008, sending it into recession for the first time since 1993.

Protectionism has also become a big issue as world leaders try to rescue their economies, and a “Buy America” clause in the U.S. stimulus package likely will be a hot topic in Rome.