HIGHLIGHTS-UPDATE 1-Bank of Canada sees thaw, warns of storms

TORONTO Feb 4 (Reuters) - Bank of Canada Governor Mark Carney said on Thursday the Canadian economy is looking up and should recover lost ground this year, but he warned of possible storms if China and the United States do not take tough decisions. [ID:nN04183979]

Following are highlights from his appearance in Winnipeg:

ON FINANCIAL REFORM AND G7 MEETING IN IQALUIT

"The forum for bringing forward financial reform is the G20, supported by the FSB. The opportunity in Iqaluit is to have frank open discussions about the progress within G7 countries towards those ends, to identify key issues, to have frank discussions about them."

"I would not look for announcements out of this weekend's meetings with respect to financial reform because that is running on the track ... of the G20."

ON A COMMON G20 APPROACH AFTER INDIVIDUAL OBAMA REFORMS

"Clearly we all want to have a coordinated approach that builds a resilient global financial system, and we have a common agenda, and there's a tremendous amount of work that's being done to move that agenda forward ... I would say that individual countries may choose to make measures above and beyond that agenda which reflect their own particular circumstances. And provided that the very high standard of the core agenda is adhered to, it's entirely appropriate ... So I don't think that it's inconsistent at all, and I don't think that's the way the U.S. administration views it either, and we will be discussing this in Iqaluit ... but we welcome the progress that's been made."

ON EXIT STRATEGIES

"What's important for all major economies is that in the not too distant future ... that there are credible paths being laid out back to fiscal sustainability."

"We are still at the phase of the recovery where it remains important at a global level that the fiscal plans that have been put in place -- the stimulus from the fiscal side -- is carried through."

ON THE CANADIAN MORTGAGE MARKET

"The Canadian mortgage market has functioned I think exceptionally well during the course of the last decade ... we've seen the strength of the system of mortgage insurance and it's provided an important funding avenue for the banks as well. It's allowed our housing market to weather the storm."

"I must say we don't see a need for structural change in the mortgage market."

ON HOUSING BUBBLE TALK

"We had expected strength in the housing market given where monetary policy was. We've seen it. We are following it closely but we would not characterize the current state of the housing market in those terms (a housing bubble)."

ON HOUSEHOLD BORROWING

"What we have said is that we have some concerns with the scale of household borrowing, or the pace of household borrowing. Again I would characterize this as a perspective issue. We want to caution people that rates are extraordinarily low right now, they're low for a reason ... but it's a means to an end." (Reporting by Rod Nickel, Ka Yan Ng, Randall Palmer, David Ljunggren, Claire Sibonney and Jennifer Kwan; Editing by Jeffrey Hodgson)