By Chris Reese and Andrew Hay
NEW YORK/MADRID (Reuters) - The world grouping OECD said on Friday the global economy had come out of "free fall," offering hope of recovery late this year, but investors focussed on risks to the U.S. credit rating from rising government debt.
Japan's central bank governor also said new data now banished notions of the world's second-biggest economy "falling off a cliff."
The U.S. dollar dropped to a 2009 low as fears grew the United States could be at risk of being stripped of its precious triple-A rating, which would have wide implications for global investment already throttled by the crisis.
Ratings agency Standard & Poor's stirred concern on Thursday by suggesting Britain could face such a downgrade.
"Is this a warning shot or is it the start of a trend? This is very dangerous territory," said Axel Merk, president and chief investment officer at Merk Mutual Funds.
U.S. stocks were slightly higher on Friday, in part on comments by Moody's that the ratings agency is comfortable with the U.S. triple-A rating "but it is not guaranteed forever."
The United States, where last year's housing market collapse set off the crisis now hitting trade and industry worldwide, has been running up government debt as it uses billions of dollars to bolster the financial system and stimulate the world's largest economy.
The head of the Organisation for Economic Cooperation and Development (OECD), Angel Gurria, said ratings agencies must "recover their prestige and credibility" after being widely criticized for failing to predict the crisis.
"It seems absolutely inexplicable that they want to cut the rating of England and that there is talk they are going to cut the rating of the United States," he said.
Gurria acknowledged there was a risk the crisis could yet be prolonged without future fiscal and credit discipline but that world output could begin to recover by the end of this year.
"We're no longer in a free fall," he said. "The (stimulus) packages in Europe aren't as big as in the United States, which is why the States is recovering quicker and the crisis is closer to its end."
BANK WOES PERSIST
HSBC Holdings, Europe's biggest bank, signalled persistent problems in the financial industry, saying "the rest of 2009 and probably much of 2010 will be challenging." HSBC has weathered the crisis better than most banks thanks to a strong balance sheet and a high level of deposits in Asia.
In the United States, there was more bank shakiness as regulators seized troubled Florida lender BankUnited FSB on Thursday and sold it to private equity firms. The failure was the largest by a U.S. bank this year.
The crisis continues to hit other sectors with British Airways, Europe's third-biggest airline, slumping to record losses, cancelling its dividend and nearly doubling its debt.
General Motors' restructuring efforts are likely to go right up to the June 1 deadline set by the Obama administration, the White House said, while Fiat's chief executive said his company was in position to win a race to buy GM's European brand Opel.
In one glimmer of hope that the global tailspin may be slowing, Canada -- the largest U.S. trading partner -- said retail sales rose for the third straight month in March.
Still, worries over the U.S. credit rating persisted.
Bill Gross, manager of the world's biggest bond fund, warned the United States will eventually lose its top rating.
The United States will face a downgrade in "at least three to four years, if that, but the market will recognise the problems before the rating services," Gross, co-chief investment officer of Pacific Investment Management Co, told Reuters on Thursday.
U.S. Treasury Secretary Timothy Geithner also sounded alarms about the burgeoning budget deficit on Thursday in testimony before a congressional panel.
S&P lowered its outlook on Britain to "negative" on Thursday, threatening its triple-A rating as debt approaches 100 percent of gross domestic product.
Britain suffered more bad news on Friday, when an official report showed GDP shrank 1.9 percent in the first three months of the year, the sharpest quarterly fall since 1979. The data served only to underline the weakness of the economy and had little market impact.
RUSSIA'S PROBLEMS
Russia, hit by lower oil prices as the global slowdown cuts demand for its commodities, saw unemployment rise to a 9-year high in April and retail sales slump for a third month in a row.
The latest data added credibility to an Economy Ministry forecast that Russia's recession could last up to two years.
Japan signalled cautious optimism, with the central bank upgrading its view of the ailing economy for the first time in almost three years. The Bank of Japan kept interest rates on hold, saying steep falls in exports and output were levelling
out.
"The pace of deterioration in the Japanese economy will likely moderate and the economy will likely stop deteriorating," the central bank said in a statement.
Bank of Japan Governor Masaaki Shirakawa, like the OECD's Gurria, used the term "freefalling" in expressing some relief that conditions had improved since the first quarter.
"There have been expressions like freefalling or falling off a cliff," he said. "We are no longer in that sort of situation."
(Reporting by Reuters correspondents worldwide; Editing by John O'Callaghan)