ECB tells banks to lend, Geithner hopes for growth

By Sakari Suoninen and Glenn Somerville

MUNICH/LONDON (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Monday he was optimistic some leading economies could grow this year, but the European Central Bank urged banks to resume lending to secure a recovery.

ECB President Jean-Claude Trichet criticised banks for simply returning much of the vast sums it has supplied to them, instead of lending the money on to firms and households to secure a recovery from Europe's worst recession in decades.

"We remind banks of their responsibility to continue to lend to firms and households at appropriate rates and in suitable volumes," he said in Munich. "It may take some time, however, for the extra liquidity to be transformed into credit."

Last month the ECB injected 442 billion euros (382 billion pounds) of 12-month funds into the banking system to encourage them to finance the real economy. But, worried about their own health, the banks parked much of that money in the safest place they could find -- back at the ECB -- potentially delaying recovery.

Evidence began emerging around late March that the global recession was starting to bottom out, driving a second-quarter rally in share markets. But weak data in recent weeks has boosted fears that stock prices had run ahead of the prospects of a solid recovery in the second half of this year.

Such doubts hit Asian and European markets. Shares fell as investors fretted about a coming wave of company earning reports, and oil dipped briefly below $59 a barrel on fears that demand will tail off if the economy stutters.

JAPAN, CHINA GIVE HOPE

Despite fears that the worst may not be over, Geithner said there was a good chance the United States and other leading economies would resume growth, though uncertainty remained.

"In my view there are still significant risks and challenges ahead," he told reporters in London when asked if he feared a possible double-dip recession.

"We have a very powerful set of policies in place, coming on stream. I think there is a very good chance we will see the U.S. economy and the world economy get back to recovery, get growing again, over the next few quarters."

That positive outlook was supported by evidence from Japan, the world's second-biggest economy, and China.

Industrial output in Japan, which is deep in recession, rose 5.7 percent in May from April, revised data showed, and a measure of companies' capacity utilisation rose.

In contrast to ECB concerns over sluggish lending, China is worried that a boom in lending as its strives to achieve eight percent GDP growth this year will cause new speculative bubbles.

Li Dongrong, an assistant governor of the People's Bank of China, said Beijing would strengthen oversight of lending to ensure credit is reasonably controlled and properly channelled.

"We are experiencing many complicated, unprecedented changes in economic and financial conditions, both at home and abroad, which have created new challenges for monetary and credit policy," he said in comments on the PBOC website.