Fed offers cautious hope

By Alister Bull and Cheon Jong-woo

WASHINGTON/SEOUL (Reuters) - The Federal Reserve said the recession in the United States was easing, offering some hope of a pick-up in the global economy, and South Korea said its economy would shrink by less than previously forecast.

Asian stock markets rose for a second day on Thursday, buoyed by signs the Fed was becoming less concerned about the state of the world's biggest economy and an unexpected jump in U.S. durable goods orders last month.

On Wednesday, the Organization for Economic Cooperation and Development said the economic outlook had improved for the first time in two years, but also warned that rising unemployment and ballooning deficits could knock a weak recovery off track.

The Fed kept interest rates near zero on Wednesday and signaled less concern on deflation, considered a threat to the economy because a pattern of falling prices causes consumers and businesses to delay purchases, dragging the economy down further.

The U.S. central bank also stuck to, but did not increase, its huge program of buying government and mortgage debt, which is designed to keep borrowing costs low and boost recovery.

"Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the Fed said in its policy statement at the end of a two-day meeting.

"Conditions in financial markets have generally improved in recent months."

GROWTH POSSIBLE

A crisis that began nearly two years ago when a U.S. housing boom turned sour has pitched the global economy into its worst downturn in six decades, with export-focused economies, many in Asia, particularly hard-hit by collapsing trade.

One of those countries, South Korea, upgraded its economic forecast for 2009 on Thursday, saying Asia's fourth largest economy was now expected to contract 1.5 percent, compared with a previous forecast of 2 percent. That would still mark the worst performance since 1998, when the economy contracted 6.9 percent as the Asian financial crisis pushed South Korea to the brink of sovereign insolvency.

Share markets rose around the region, with Japan's Nikkei .N225 up 1.6 percent and Seoul stocks gaining 1.7 percent.

MIXED PICTURE

Mixed economic indicators have been keeping global investors guessing about the markets' direction.

Data on Wednesday showed new orders for long-lasting U.S. manufactured goods rose unexpectedly by 1.8 percent in May, surprising analysts who had expected a fall of 0.6 percent.

A separate report showed that U.S. mortgage applications climbed last week from a seven-month low, adding to signs that the three-year housing market slump may be abating.