Geithner sees confidence return, supports dollar

By Glenn Somerville

JEDDAH (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Tuesday he saw signs of confidence returning to the U.S. financial sector and pledged that the United States would pursue policies that preserve the dollar's value.

"The policies of the United States are designed to lay the conditions for a strong dollar for more stability in the international monetary system and among the major economies," he said at the Jeddah Chamber of Commerce.

Geithner, who arrived in Saudi Arabia overnight from London, is aiming to reassure Gulf Arab states that the United States wants their investments and that their U.S. dollar assets are safe. He travels to Abu Dhabi in the United Arab Emirates on Wednesday and will also make a stop in Paris on Thursday.

Signs of strength were also returning to the economy, he said. "We are seeing very active issuance in corporate bonds and equity markets and the banking system itself in the United States shows signs of more confidence," Geithner said.

Geithner said aggressive efforts to counter a global financial crisis were starting to work and acknowledged the United States had a special duty to help spur a recovery.

"Given the dollar's role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognize that the United States has a special responsibility to play," he said.

Five of the six Arab states that comprise the Gulf Cooperation Council -- Saudi Arabia, the UAE, Bahrain, Qatar and Oman -- peg their currencies to the dollar. The sixth, Kuwait, uses a basket heavily weighted in dollars.

As he did in London, Geithner said the global economy faced severe challenges but sounded a reassuring note about future prospects if "steady, forceful and sustained" support continues until private investment and spending lead a recovery.

"The force of the global recession is receding," Geithner said.

Stabilize, REPAIR

He said it was vital to stabilize and repair a damaged U.S. financial system and outlined efforts to do so. "No recovery is possible without repairing the institutions and markets that are critical to the supply of credit," Geithner said.

He said a $787 billion U.S. economic stimulus program, designed to boost demand over a two-year period, will have its largest impact on the spending side over the next six months.

Geithner made no mention of calls from some U.S. lawmakers to consider another stimulus package, instead emphasizing the need for patience with the current one.

In the United States, he said there was some pickup in business and consumer confidence and that the cost and availability of needed credit was improving.

"These improvements have been more substantial and have come more quickly than many of us expected when we were designing these programs in December and January," he said.