Sentiment at big Japanese manufacturing firms improved in the three months to June, data on Monday showed, but the World Bank said prospects for the global economy remain "unusually uncertain" as it cut 2009 growth forecasts for most economies.
Governments around the world have borrowed billions of dollars to fight the worst economic crisis in decades, providing incentives for businesses and consumers to spend and embarking on big infrastructure programmes to create jobs and stimulate activity.
European Central Bank President Jean-Claude Trichet warned governments now had no room for more debt and would have to start bringing down budget deficits.
"There is a moment where you can't spend anymore and you can't accumulate any more debt. I think we are at that moment," Trichet told Europe 1 radio on Sunday.
Like the ECB, the U.S. Federal Reserve has cut interest rates to record low levels and used unorthodox means to pump more money into the system.
The Fed's interest rate setting committee meets on Tuesday and Wednesday and economists polled by Reuters see no chance that the Fed will raise its benchmark short-term interest rate from the current level near zero.
The Fed is also seen unlikely to ramp up its purchases of U.S. government and mortgage-linked debt as investor focus shifts to inflation on evidence that the economy is stablising.
JAPAN SENTIMENT LESS BLEAK
The Bank of Japan is also unlikely to wind down its unconventional stimulus policies despite the less bleak view of Japanese manufacturers, economists said.
The business survey index (BSI) of sentiment at large manufacturers stood at minus 13.2 in April-June, compared with minus 66.0 in the previous quarter, the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office, said on Monday.
"We'll likely see a big improvement in sentiment in the BOJ's tankan survey," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But it's too early for the BOJ to examine an exit strategy. Companies are still saddled with excess capacity. Capital spending will likely remain weak for some time."
The World Bank cut its GDP forecasts for Japan, as well as the United States and the euro area for this year and next.
The bank, which has recently cut its forecast for the global economy to a contraction of 2.9 percent from a projection for a 1.7 percent decline set in March, was releasing details on individual economies for the first time on Monday.
Concerns that investors might have been too quick to price in a quick and lasting recovery prompted stock markets to retreat last week after a powerful rally from their March lows.
Asian stocks edged up on Monday, with Japan's Nikkei average gaining 0.1 percent and MSCI's measure of stocks elsewhere in Asia up 0.5 percent.
"I think nobody doubts that the market has bottomed out, but for us to see real recovery we need signs of hope in macroeconomic indicators," said Masayoshi Okamoto, head of dealing at Jujiya Securities in Japan.
MIXED SIGNALS
Evidence for a recovery remained mixed.
Asking prices for homes in most of Britain fell in June after four months of rises, but the annual rate of decline moderated to an eight-month low, property website Rightmove said on Monday.
A lack of new sellers has boosted property asking prices this year, although there remains a big gap between sellers' aspirations and actual selling prices.
"It is a mistake to confuse the upturn in enquiries and sales with a return to a more normal market," said Miles Shipside, Rightmove's commercial director.
"While conditions are much improved on the darkest days of last year, we are now starting to see some big distortions and wild swings due to the combined effect of the recession and restricted mortgage availability."
In China, imports of refined copper hit a record for the fourth straight month in May but metals markets worried that the big restocking by China could soon ease.
Germany's Ifo business climate index for June due later on Monday is expected to show a third straight month of improvement on hopes that Europe's largest economy may soon pull out of a historic recession.
