G7 finance chiefs give bleaker view on growth

By David Lawder and Gernot Heller

WASHINGTON (Reuters) - Finance chiefs from rich nations offered a gloomier assessment of the global economy on Friday as persistent market turmoil curbs lending and spending, and vowed swift action to tighten banking oversight and improve cross-border cooperation.

With fresh signs of economic distress in the United States, where consumer confidence hit its lowest level since 1982, Group of Seven leaders said risks to the economic outlook were tilted to the downside. They pointed to the weak U.S. housing market, stressed financial markets and rising inflation.

The finance leaders also expressed concern about sharp fluctuations in foreign-exchange markets since the group last met in Tokyo in February. The U.S. dollar has fallen sharply against the Japanese yen and the euro in recent weeks.

"We remain positive about the long-term resilience of our economies, but near-term global economic prospects have weakened," the finance leaders said in a communique following a meeting here. "The turmoil in global financial markets remains challenging and more protracted than we had anticipated."

The G7 stopped short of declaring that the U.S. economy was heading for a recession and bristled at sharp reductions in growth forecasts from the International Monetary Fund.

A special study commissioned by the G7 nations offered a detailed assessment of the banking and regulatory failures that contributed to the market turmoil that has raged for eight months. The report offered dozens of recommendations on how to shore up oversight and operations to prevent a recurrence.

The G7 -- the United States, Canada, Britain, France, Germany, Italy and Japan -- said it strongly endorsed the report from the Financial Stability Forum, which comprises central bankers and global regulators, when it concludes a meeting that began in mid-afternoon.

The FSF report calls for tougher capital requirements for banks to ensure that they can withstand periods of financial market stress, and urges closer international cooperation between central banks and regulators.