Bernanke talks exit plans

The U.S. Federal Reserve has plenty of tools to push borrowing costs up when the economy recovers, Chairman Ben Bernanke said, as his counterparts in Australia turned more upbeat on the outlook for global growth.
Equity markets have also been pricing in a recovery from the world's sharpest downturn in more than 80 years, with Asian stocks on Tuesday climbing to their highest level since September last year, buoyed by a solid start to the second-quarter reporting season.
Improving profits and tentative signs of recovery in the global economy have fuelled debate about how and when central banks will remove the unprecedented stimulus measures introduced as the crisis erupted last summer.
Stressing that the weak U.S. economy will likely warrant exceptionally easy policies for a long time to come, Bernanke outlined in a newspaper opinion piece how the Fed could raise interest rates even with cash flooding the financial system.
"Accommodative policies will likely be warranted for an extended period," Bernanke wrote in the article published on the Wall Street Journal's website.
"At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."
Bernanke, set to begin two days of congressional testimony on Tuesday, stopped short of giving a timeframe when benchmark interest rates may be raised, but described in detail the tools the Fed has to raise borrowing costs and reduce liquidity from the system.
RBA MORE UPBEAT
Other central banks are also looking ahead to when record low interest rates might be returned to more normal levels.
Minutes from the Reserve Bank of Australia's meeting earlier this month showed the central bank there had grown more optimistic on the economic outlook.
The bank left interest rates unchanged at a record low level but said it still saw scope for further easing if necessary.
The minutes also showed the bank believed monetary and fiscal stimulus had worked to support household demand and confidence, and credited strong demand from China for keeping Australia's commodity-focused exports surprisingly strong.
Demand from China, spurred by a $585 billion stimulus package, has proved a boon for companies across Asia as major Western economies contracted, helping stock markets in the region out-perform their European and U.S. rivals.
MSCI's measure of Asia-Pacific stocks outside of Japan rose 0.3 percent on Tuesday, up for a sixth day running and hitting its highest level since September.
The index has gained almost 40 percent so far this year, compared with a near 12 percent rise in MSCI's All Country World index.
Japan's Nikkei average rose 1.4 percent, getting a lift from the renewed optimism on the economic outlook as the market reopened after an extended weekend.
An expected dissolution of the Japanese parliament later in the day, the first step towards a national election expected on Aug. 30, had little impact.
Helping Asian sentiment on Tuesday was news of a lifeline for troubled U.S. lender CIT Group Inc which boosted Wall Street on Monday.
CIT, a lender to nearly 1 million small- and mid-sized U.S. companies, said it had reached a deal with bondholders for $3 billion in emergency financing.
A solid start to the second quarter reporting season has also encouraged investors back into riskier assets such as stocks and pushing both the yen and the dollar lower.
As of last week, 71 percent of the 55 S&P 500 companies that had reported earnings so far beat expectations, according to data compiled by Thomson Reuters.
But a larger-than-expected loss and a downbeat outlook from world number-two truck maker, Volvo, showed a recovery may still be some way off.
"In terms of market outlook, we maintain our assessment that the total European market for heavy trucks will be at least halved in 2009 compared with 2008 and that the North American market will decline by 30-40 percent," the Swedish company said.
More big U.S. corporate names report on Tuesday, including beverage firm Coca-Cola Co, heavy machinery maker Caterpillar Inc and consumer electronics maker Apple Inc.