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ECB’s Trichet sees recovery in 2010

  The battered global economy faces a difficult year but will begin a recovery in 2010, the European Central Bank president said on Friday, as signs that the crisis was past its worst buoyed a broad rally in stock markets.

“Confidence today relies equally upon the audacity of our immediate decisions and upon the soundness of our exit strategies,” Jean-Claude Trichet said in a speech in Tokyo, adding that the ECB would decide next month on non-conventional ways to boost the economy.

In a speech in Washington, International Monetary Fund Managing Director Dominique Strauss-Kahn also predicted a recovery in 2010 after the global economy moved through “deeply negative territory” this year.

He said governments in advanced economies needed to fix their financial sectors by cleaning banks’ balance sheets of toxic assets, and had to be careful not to withdraw their fiscal stimulus measures prematurely.

“Of course, the solutions differ by country, but there must be a coherent and coordinated response by the international community,” Strauss-Kahn said. “Until this is done, attempts to restore demand are likely to falter.”

Stocks rose across Asia after a strong rally in the United States the previous day, with the banking and technology sectors boosted by stronger-than-expected results from JPMorgan and Google.

Emerging equities are at six-month highs, with a growing number of analysts saying the worst of the crisis may be over.

But Bank of Japan Governor Masaaki Shirakawa said the country’s economy “is expected to continue deteriorating for the time being. Commercial paper and corporate bond issuance is improving,” he said. “But Japan’s financial environment remains severe as a whole with more companies, regardless of their size, saying fund conditions and bank’ lending attitudes are severe.”

MIXED SIGNALS

US Federal Reserve officials gave mixed signals on Thursday, with the head of the Atlanta Fed forecasting a return to growth later this year, but the head of the San Francisco Fed warning of the potential for an even deeper contraction.

The Atlanta Fed’s Dennis Lockhart told a conference in New York that the US recession would end by mid-year, with growth slowly picking up in the following months.

“I do not expect a strong recovery, but I do expect the economic contraction we’re now experiencing to give way to slow and tentative growth as early as the third quarter,” Lockhart said, adding that there were “encouraging signs that support cautious optimism.”

But the San Francisco Fed’s Janet Yellen said signs that some US indicators were stabilizing did not mean that the economy was out of the woods. “The negative dynamics between the real and financial sides of the economy have created severe downside risks,” she said. “While we’ve seen some tentative signs of improvement in the economic data very recently, it’s still impossible to know how deep the contraction will ultimately be.”

Google Inc, the top US Internet search company, added to a brighter outlook for the tech sector by announcing stronger-than-expected profits after the closing bell in New York on Thursday. But CEO Eric Schmidt said the company was not immune to the global downturn.

“We’re still basically in uncharted territory,” he said. “Google is absolutely feeling the impact. Users are still searching but they’re buying less. Ultimately, what that really means is the ads are converting less.”

JPMorgan Chase, the No. 2 US bank, also beat forecasts with its quarterly profits, bolstering hopes of stabilization in the financial sector.

JPMorgan, which said better investment banking performance offset higher losses from consumer debt, launched a $3 billion bond sale on Thursday that does not have government backing -- its first such deal in about eight months.

Its rival, Goldman Sachs, also posted surprisingly good Q1 profits on Monday and said it planned to raise funds to repay the $10 billion it got in federal rescue money. Improved investor sentiment about the US banking and tech sectors helped to drive the Dow Jones industrial average up 1.19%, the S&P 500 by 1.55% and the Nasdaq by 2.68%.

But General Growth Properties, the second-largest US mall owner, underscored the tenacious grip of the downturn and the problems caused by frozen lending, filing for bankruptcy protection in the biggest real estate failure in US history.

General Growth said its core business was solid but that bankruptcy was the only way it could refinance debt.

In a bullish sign for emerging markets, Indonesia sold a debut offering of $650 million of five-year global Islamic bonds at a yield of 8.8%, according to a source familiar with the deal, indicating strong investor demand. The offering was a test for the sukuk market, badly hit by the global financial crisis and the collapse of oil prices. (Reuters)