The U.S. government will propose tough new financial rules on Thursday as part of its push to stabilise the economy and curb excessive risk-taking that nearly wrecked its banks and set off a world financial crisis.
The proposals follow some tentative signs that the world's biggest economy may have stopped shrinking and the announcement earlier this week of Washington's plan to purge banks of up to $1 trillion in toxic assets at the root of the global credit rout.
The regulatory initiatives also come at a time of President Barack Obama's push to win Congress backing for his around $3.5 trillion 2010 spending plan, which he says is "inseparable" from his effort to pull the U.S. economy out of recession.
Obama's administration wants to create a powerful systemic risk regulator with the authority to look deep into non-bank financial firms, such as hedge funds and private equity firms, officials said.
The proposals also aim to regulate credit default swaps and over-the-counter derivatives for the first time, said the officials, speaking on condition of anonymity.
Treasury Secretary Timothy Geithner will outline the plans to Congress on Thursday, and the proposals will serve as the basis for discussions on regulatory reform when Obama meets Group of 20 (G20) leaders of the world's top economies in London next week.
Latest government reports showed the U.S. manufacturing and housing sectors may have begun recovering from the recession that began in December 2007.
DEBT WORRIES
U.S. stocks rose after the data, but tepid demand for U.S. and British debt at bond auctions fed into growing concern whether, and at what cost, governments will be able to borrow enough to cover the soaring costs of economic pump-priming.
Such worries came to haunt New Zealand on Thursday, caught between the pressure to help the economy with more aggressive interest rate cuts and the need to keep debt yields attractive enough for foreign investors to help finance its debt.
There were also more signs that Obama will need to overcome scepticism about his spending plans at home, and it will be a tough sell for him to persuade G20 leaders next week to keep public cash taps open.
A leading euro zone finance minister rebuffed U.S. calls for more spending and concerted action, arguing Europe has done enough to help its economies recover from the deepest global recession since World War Two.
Asian stocks followed Wall Street gains, climbing more than 2 percent to 11-week highs after data showed new U.S. orders for durable goods rose in February for the first time in seven months and new home sales rebounded.
Asian chip makers, such as Hynix and Elpida Memory, offered another reason to cheer, citing signs of recovery for the battered industry heavily exposed to global swings in demand.
Sceptics say, however, it is too early to declare a bottom, and two top Federal Reserve officials warned the U.S. recession would drag on for some months before a recovery starts late this year or in early 2010. Toyota, the world's No. 1 carmaker, also sounded a word of caution, predicting no improvement in U.S. industrywide car sales in March after they plunged to a 27-year low in the first two months of the year.
"Annualised sales in January and February were a little above 9 million, and we're hearing that March will be about the same if not worse than February," President Katsuaki Watanabe told reporters.
A German measure of consumer sentiment compiled by market research group GfK also showed on Thursday that the mood remained downbeat in Europe's biggest economy, despite 81 billion euros ($110 billion) of fiscal stimulus pledged by the government.
As manoeuvring intensifies ahead of the G20 summit on an economic action plan, China appeared to side with Washington as Finance Minister Xie Xuren said countries should increase their economic stimulus plans if necessary to boost market confidence. A senior IMF official warned the world economy will not start its recovery as expected in 2010 if countries withdraw fiscal stimulus too soon.
But Jean-Claude Juncker, who chairs the group representing euro zone finance ministers, again rejected Obama's appeal on Tuesday for leading economies to spend more in concerted action.
"The European stimulus plans are strong, they are demanding and they are significant in terms of volume and quality," he told Europe 1 radio. "There is no (possibility) that, upon the demand of the United States, that we would increase it."
