Bernanke optimistic on positive signs

Federal Reserve chairman Ben Bernanke sounded an optimistic note when he expressed confidence in US economy's inherent strength. His remarks have been picked up by analysts as a sign that the global economy is about to turn the corner.

The sense of returning confidence was reflected in Bank of Korea's decision on Tuesday to keep interest rates steady for the third consecutive month and its forecast of ''mild growth'' for the fourth-largest economy in Asia in the months to come.

But there may still be a long way to go as a recovery from the worst global recession in six decades is not expected to be smooth or quick. If China's economic data provides any pointers both optimists and pessimists have a lot to dwell on.

Investment growth in China quickened in the first four months of the year pointing to Beijing's $585 billion infusion producing encouraging results. A sharp upswing in imports of key commodities such as crude oil, iron ore and copper suggested reviving industrial activity.

But while imports and exports grew in April from the previous month, they slumped from a year earlier, but the drop was steeper than projected.

Analysts say that the month-on-month exports growth does not mean China's trade sector had weathered the most difficult period. They say it is largely due to the discounting of inventories rather than a significant rebound in demand.

They say that the financial crisis and its impact on China's trade sector would not fizzle out any time soon and it was too optimistic to expect a big rebound.

China is now being watched interestedly by analysts who are bullish about its ability to spur growth through massive government funding and a US recovery expected in the second half of the year. Japan and Europe will also be similarly mired in recession until some time next year.

"I think the dollar will be strong. I think it will be strong because the U.S. economy is strong," Bernanke said in response to a question after delivering a speech at a conference hosted by the Atlanta Fed.

The dollar fell against a basket of currencies near a four-month low, but held firm against the euro. He added that there was reason for cautious optimism following the ability demonstrated by major US banks to boost capital under the government 'stress test'

"Many of the banks are well ahead in finding private sector options for increasing their common equity, and several have announced plans for new equity issues," he said.

The Fed and other regulators announced that 10 of the 19 firms tested would need an infusion of extra $74.6 billion which was less than what some analysts had projected.
Meanwhile at the central bankers meet at the Bank for International Settlements in Basel there was a similar note of measured optimism.

"We are, as far as growth is concerned, around the inflection point in the cycle," said European Central Bank President Jean-Claude Trichet, noting that some economies were already reporting growth, while others saw declines slowing.

However while recovery hopes have triggered a nearly two-month rally in global stock markets other signs of the slowdown including job cuts, corporate losses and rising bad debts and low trade levels have served to keep investment sentiment in check.