The global economy is stabilising as China gains pace and the U.S. economy possibly nears a turning point, Australia's central bank said on Tuesday, while markets struggled to shake off doubts about the speed of any recovery.
Last week's grim U.S. jobs report fuelled fears that further job losses could sour the consumer mood and stall any nascent recovery, forcing stock markets into reverse.
Asian stocks edged higher on Tuesday, following some tentative Wall Street gains. But investors remained cautious in the face of official warnings about the fragile state of the world economy and policymakers' frustration with banks' sluggish lending to businesses and consumers.
European Central Bank data showed on Monday that overnight deposits with the ECB had reached an all-time high — evidence banks preferred to hoard cash rather than risk lending it.
The World Bank, in a letter to Group of Eight nations due to meet this week, said interventions by central banks and governments appeared to have "broken the fall in the global economy," but 2009 remained a dangerous year.
"Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," Bank President Robert Zoellick wrote.
CHINA LEADS
The Reserve Bank of Australia struck a more upbeat note, citing diminished risks ahead and improved market conditions even as it acknowledged that credit conditions remained tight and the effects of economic stimulus would be slow in coming.
"Growth in China has strengthened considerably, which is having an impact on other economies in the region, including Australia," the central bank said in a statement.
"There is tentative evidence that the U.S. economy is approaching a turning point, but conditions in Europe are still weakening," it said after its monthly policy meeting.
China's economy should grow by 7-7.5 percent year-on-year in the second quarter, picking up to 8 percent in the third quarter and 9 percent in the final three months of the year, according to Zhang Jianhua, head of the Chinese central bank's research department.
U.S. policymakers and economists have voiced optimism that the world's biggest economy would start growing again this quarter. However, last week's report that the U.S. economy lost nearly half a million jobs in June, far more than expected, has shaken that confidence and triggered calls for more stimulus spending.
One of President Barack Obama's economic advisers said the United States should consider the need to top up the $787 billion rescue package passed early this year.
"We should be planning on a contingency basis for a second round of stimulus," Laura D'Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis, told a seminar in Singapore.
Australia's central bank, as expected, kept its benchmark rate steady at a record low 3 percent, saying it still had scope to lower its cash rate that is still among the highest in the developed world and much above the G7 average of 0.4 percent.
Gains in technology shares, after some early encouraging quarterly results, underpinned Asian stocks with the MSCI index of Asia-Pacific shares outside Japan up 0.3 percent. Japan's Nikkei share average dipped 0.3 percent.
European shares were also set to bounce after three sessions of losses, with a rebound in oil and metal prices lending support to resource-related stocks.
With bets on a lasting economic upturn still fraught with risk, investors are keen to see any evidence that things are looking up.
Monday's report showing that a contraction in the U.S. service sector continued to slow offered some solace, and markets in Europe will look forward to German industrial orders data at 1000 GMT, expected to show a 0.5 percent rise in May.
That would mark a third consecutive month that orders were either up or steady, even though analysts warned it was too early to talk about a lasting improvement in Europe's biggest economy mired in its worst recession since World War Two.
Euro zone finance ministers meeting in Brussels on Monday highlighted the challenges still facing the economy, fearing the current downturn could dent the bloc's ability to sustain growth in the future, while high unemployment could lead to social crisis.
