Paulson sees slower U.S. growth, markets recovering

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said on Tuesday he believes the U.S. economy will manage to grow slowly in the near term and capital markets will recover from a difficult period of stress as they reassess and reprice risk.

"The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy. I believe our economy will continue to grow, although at a slower pace than we have seen in recent years," Paulson said in prepared testimony to the U.S. Senate Finance Committee.

Paulson said helping capital markets work through their current stress was the Treasury's "first concern." It is monitoring capital markets closely and advocating strong market discipline and robust risk management.

"While we are in a difficult transition period as markets reassess and reprice risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again," Paulson added.

Paulson repeated his view that the United States was undergoing a "significant and necessary" housing correction, which along with high energy prices and capital market turmoil, had "caused economic growth to slow rather markedly at the end of 2007."

He said the economic risks were clearly to the downside, and it has become evident in recent weeks that quick action to support the U.S. economy was needed, while the potential costs of inaction were too great.

He urged the U.S. senate to quickly pass a fiscal stimulus bill, saying that if the bill sent to President George W. Bush "meets our shared principles," the Treasury could begin distributing tax rebate checks in May and complete this in the summer.

Along with business incentives, the rebate checks will help create more than 500,000 jobs by the end of 2008, he said.

Bush also said Bush's $3.1 trillion fiscal 2009 budget proposal helps to support the goal of a strong economy, and "balances our nation's needs with our nation's resources."

(Reporting by David Lawder; Editing by Andrea Ricci)