The Bank of England looks set to feed more cash into its economy on Thursday, underscoring policymakers' commitment to support a fragile recovery from the worst global recession since World War Two.
The International Monetary Fund raised its 2010 global growth outlook, but warned that neither the economy nor the banking industry at the heart of the financial crisis were strong enough to do without heavy public spending and cheap central bank funds.
Lingering concerns about the health of the global economy continued to haunt markets, driving Asian stocks lower and keeping a lid on oil prices.
"The recovery is coming, but it's likely to be a weak recovery," IMF chief economist Olivier Blanchard said after the Fund forecast the world economy will slowly pull out from a 1.4 percent slump this year and grow 2.5 percent in 2010, faster than the 1.9 percent growth it forecast in April.
Leaders of the Group of Eight industrial nations meeting in Italy agreed that despite rounds of interest rate cuts and an estimated $5 trillion in public spending, it was much too early to cut off economic lifelines.
"All were of the view that the crisis is a long way from being over," German Chancellor Angela Merkel. "With luck, we have reached the bottom," she told reporters in L'Aquila, where leaders of the United States, Japan, Germany, France, Britain, Italy, Canada and Russia were holding their annual summit.
EASING TOP-UP
Britain's central bank is expected to act in that vein and expand its 125 billion pound quantitative easing scheme while keeping interest rates at a rock-bottom 0.5 percent.
Economists expect the BoE to add 25 billion pounds to the newly created money used to buy government bonds and corporate debt to encourage lending to the rest of the economy.
Fears that high unemployment and weak consumer spending could strangle the nascent recovery made investors trim riskier bets, with the yen soaring to a 5-month high against the dollar and pushing Tokyo stocks down 1.4 percent to a 7-week low.
The yen's spike, exacerbated by automatic stop-loss dollar sell orders, was so big that it prompted a government warning that sharp currency moves could jeopardize the world's No.2 economy and hurt financial markets.
However, stock markets elsewhere in Asia-Pacific found some support in bets that upcoming company quarterly reports will offer evidence that the worst of the downturn was over.
U.S. aluminium giant Alcoa Inc appeared to back that view, kicking off the U.S. earnings season after the market close with a smaller loss than analysts had expected.
Signs that Asia's economies were doing better than the United States or Europe also helped limit the losses.
China offered fresh assurances that the world's third-biggest economy was regaining momentum, with a leading think-tank saying growth should come within the 8 percent target this year.
South Korea's central bank predicted Asia's fourth-largest economy will keep expanding slowly in the second half and said it would raise its full-year outlook, after it kept rates on hold for a fifth straight month.
In Australia, investors saw a silver lining in a jobs report that showed the unemployment rate hitting a 6-year high of 5.8 percent in June, but the pace of job losses abating.
"The labour market has essentially stabilised far sooner than anyone thought," said Brian Redican, senior economist at Macquarie.
TRADE DEAL EYED
In contrast, economies in Europe and the United States are expected to keep losing jobs for months to come, driving unemployment rates to double digits.
While battling recession topped the G8 agenda on Wednesday, Thursday's focus shifts to talks on global warming and trade with major emerging nations, which have complained they are suffering heavily from a crisis not of their making. Hit by shockwaves from the crisis born out of reckless lending practices by top Wall Street and European banks, China, India and Brazil have suggested the world should consider an alternative to the dollar as the global reserve currency. Russia has also backed the idea.
The debate is highly sensitive in financial markets, which are wary of risks to U.S. asset values, and the issue is unlikely to progress very far in L'Aquila.
However, a breakthrough on trade did look within reach. Diplomats say the G8 and major developing economies should agree to conclude the stalled Doha round of trade talks in 2010.
Launched in 2001 to help poor countries prosper, they have stumbled on proposed tariff and subsidy cuts.
