By Anirban Nag
SYDNEY (Reuters) - The world's top policymakers offered their most upbeat assessment of the global economy in months, saying it was stabilising and that it could start growing again as soon as late this year.
Australia's central bank governor Glenn Stevens on Tuesday joined the growing chorus of officials predicting that the economy should start pulling out of its worst recession in more than six decades later this year.
"Developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year," Stevens said in a speech.
His comments follow World Bank President Robert Zoellick's assessment that the global downturn was abating and growth could resume this year or next, and surprisingly optimistic remarks from European Central Bank Vice-President Lucas Papademos.
Only a week ago Zoellick highlighted the high degree of certainty about the world economy's future, while Papademos' take on the euro zone's prospects was more upbeat than the ECB's base scenario of recovery only taking hold next year.
The comments helped restore market confidence, dented recently by deeper-than-expected first-quarter declines in U.S. and euro zone economies.
Investors are also looking forward to signs of growing consumer confidence following an upbeat outlook from a major U.S. retailer, along with an improvement in the U.S. housing market, whose collapse in mid-2007 triggered the global crisis.
Lowe's <LOW.N>, the No. 2 U.S. home improvement retailer beat expectations with its quarterly results on Monday and raised its full-year forecast while noting recent signs the decline in the housing market may be slowing.
YEAR HIGH
That view was backed by a private survey showing U.S. homebuilder sentiment reached its highest level in eight months in May. Housing starts figures due later on Tuesday are expected to show a rise to 520,000 in April.
The improving data helped spur a 3 percent rally in Wall Street stocks and Asian stocks followed on Tuesday, with Nikkei <.N225> rising 2.8 percent. Shares elsewhere in Asia also jumped, extending Monday's gains, with the regional index climbing further 2.9 percent <.MIAPJ0000PUS> to its highest level this year, up more than 54 percent since early March lows.
In another sign of returning investor confidence, the Chicago Board Options Exchange Volatility Index <.VIX>, Wall Street's favourite barometer of investor fear, fell 8.7 percent on Monday to its lowest level in more than eight months.
"Market sentiment has turned more positive after solid gains overnight on Wall Street on the back of better-than-expected economic data," said Kim Seung-han, a market analyst at HI Investment & Securities in South Korea.
In a sign that the U.S. banking industry was finding its feet again, Goldman Sachs Group <GS.N>, Morgan Stanley <MS.N> and other banks have applied to repay billions of dollars in government aid, according to sources familiar with the situation.
In Europe, trade numbers out on Monday that showed exports rose in month-on-month terms in March for the second month running and appeared to suggest that the euro zone's 2.5 percent contraction in the first quarter was its low point.
ECB's Papademos gave optimists further reason to cheer, predicting an upturn sooner than most of his colleagues or economists have dared to suggest.
"Our central scenario continues to be that the recovery of the European economy, and of the euro zone in particular, will gradually take place during next year," Papademos told Athens News Agency in an interview. "But recent evidence may be suggesting that it could come a little sooner ... meaning towards the end of 2009."
TEMPERING ENTHUSIASM
At the same time, other top officials were hard at work tempering market hopes for a speedy recovery.
Policymakers are concerned that too optimistic expectations may erode public support for costly fiscal packages and bailouts implemented to keep economies and key companies afloat.
Central bankers may also fear that expectations of a quick turnaround may drive market rates up again, undermining efforts to supply struggling companies and consumers with cheap funds.
U.S. Treasury Secretary Timothy Geithner said that while the U.S. economy has "clearly stabilised," the United States remained in "the most challenging economic climate the country has seen in generations."
The Reserve Bank of Australia's Stevens struck a similar note, saying growth was likely to be "pretty slow" in the first stage of recovery. And the International Monetary Fund's No. 2 official, John Lipsky, also warned consumer demand in advanced economies may not recover to its pre-crisis levels.
Many central banks, after months of furious interest rate cuts and unconventional steps such as direct asset buying, have paused recently or signalled an intention to do so, taking time to gauge their effects on the economy.
The Bank of Japan, which like the U.S. Federal Reserve and the Bank of England, has already slashed rates near zero, may, however, tweak its policy again when it meets on Thursday and Friday. The Nikkei newspaper reported the central bank was considering adding U.S. Treasury bonds and other foreign debt to the range of collateral which financial institutions can use to borrow from the central bank.
(Reporting by Reuters correspondents worldwide; Writing by Tomasz Janowski; Editing by Lincoln Feast)