The IMF is likely to revise up its 2010 growth forecast for the world economy, a senior fund official said on Friday, while European Union leaders were set to back the creation of a cross-border system of bank supervisors. U.S. jobs and factory data offered hope that the economy may be clawing its way out of recession, halting the week's stock market slide and bolstering hopes the world's biggest economy, which has been in recession since December 2007, has hit bottom.
Hopes of a rebound have lifted global share markets about 40 percent from a March nadir, when economic data was unremittingly bleak, but optimism has been tempered in recent days by warnings that the recovery is likely to be slow.
"U.S. economic data is pointing to an end to the U.S. recession. Good news? Absolutely," said Patrick Bennett, Asia FX and interest rate strategist at Societe Generale in Hong Kong.
"But unfortunately the end of recession does not mean the end of pain."
The MSCI index of Asia-Pacific shares outside Japan rose 0.9 percent on Friday, but was down around 5 percent on the week, while Tokyo's Nikkei also gained 0.9 percent.
UNCERTAINTY ON RECOVERY
International Monetary Fund First Deputy Managing Director John Lipsky said the organisation was likely to upgrade its forecast for growth next year on signs that the rate of decline in global output has moderated.
But Lipsky, addressing a Turkish business conference in the southern town of Bodrum, warned that it was far too early to declare victory, with financial conditions far from normal and the world economy still in recession.
"While the latest data point to a slowing of the global contraction, there is still great uncertainty regarding the timing and pace of economic recovery," Lipsky said.
The IMF is scheduled to present updated forecasts for the world economy on July 7 in Washington. During its previous forecast in April, the Fund projected the world economy would contract 1.3 percent this year in the deepest post-World War Two recession and rebound to grow at 1.9 percent next year.
The worst downturn in six decades was triggered by a banking crisis tied to massive losses in the U.S. housing market that prompted a dramatic collapse in world trade.
A widespread view the crisis was rooted in excessive risk-taking on Wall Street and in other financial centres has provoked furious debate about how to expand and coordinate the power of financial regulators around the world.
EU leaders agreed on a bloc-wide supervisory regime after late-night talks alleviated British fears the new pan-EU bodies could undermine the power of its national regulators to guide its huge financial service sector, a summit draft showed.
The financial supervisory proposals involve creating three pan-European regulatory bodies next year to ensure countries introduce new rules on supervision, and a new European Systemic Risk Board that would monitor risks to stability.
The agreement followed U.S. President Barack Obama's announcement on Wednesday of what he called the most sweeping reform of U.S. financial supervision since the 1930s.
"The European Council took a number of decisions … with the aim of protecting the European financial system from future risks and ensuring that the mistakes of the past can never be repeated," said a draft summit statement seen by Reuters.
BOND YIELDS
While data on Thursday showed that the number of U.S. workers filing new claims for jobless benefits rose in the latest week, economists were heartened by the first drop in the number of unemployed people remaining on benefit rolls since January and the biggest decline since November 2001.
Investors were also comforted by the slowing pace of contraction in the Philadelphia Federal Reserve's regional gauge of manufacturing and a rise in expectations in the index to its highest since September 2003 — when the U.S. economy was healing from its last recession.
U.S. government bonds fell in response to the data, with the benchmark yield also rising on worries about the market's ability to handle $104 billion in debt to be offered in auctions next week.
"With persisting concerns about supply worries in the U.S., investors are focusing on whether the Fed will increase its Treasury buying," said Tomohiro Nishida, a manager at Chuo Mitsui Trust and Banking in Tokyo.
A surge in long-term government bond yields in recent weeks showed financial markets fear huge sums of money poured into economies through drastic stimulus packages to combat the recession will ultimately fuel inflation.
A sharp run-up in prices could force central banks to hike interest rates sooner than expected, potentially choking off a recovery.
Bank of Japan minutes published on Friday revealed that one board member had told a rate review meeting in May that the BOJ should monitor long-term interest rates as rising government bond issuance could make them more volatile.
The BOJ has appeared unfazed by the yield rises in Japan, seeing them more as a reflection of growing market optimism over the economic outlook, with stock prices also climbing steadily.
Japan's export-led economy has been hit hard by the recession, which has forced companies such as Sony Corp and Toyota Motor Corp to cut jobs and slash production.
Sony, which last month forecast a second straight year of losses, said on Friday its restructuring plan was on track.
"We are seeing steady progress and are working to reduce costs throughout the Sony group by more than 300 billion yen ($3 billion)," Chief Executive Howard Stringer said at the company's annual shareholders' meeting, repeating a cost cut target for the year to March 2010.
