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IMF ups 2010 growth view; W.Bank cuts it for 2009

NEW YORK (Reuters) - The International Monetary Fund has revised its 2010 growth forecast sharply upwards, a source said on Thursday, while surging Chinese investment in May also fueled hopes of a global recovery.

The IMF raised global growth estimates for 2010 to 2.4 percent from 1.9 percent, and confirmed its April forecast for a 1.3 percent contraction in 2009, a G8 source who has seen the latest figures said.

But underscoring the opacity of the outlook, World Bank President Robert Zoellick said the global economy is set to contract by close to 3 percent this year, worse than the IMF figure and its own previous estimate of a decline of 1.75 percent.

“I personally believe you might be able to see some aspects of recovery in 2009 and 2010, but from a policy point of view, that isn’t the core question because we have a large degree of uncertainty,” Zoellick told reporters.

These latest forecasts highlight the difficulty of predicting the timing of recovery, but investors are keen for further signs the economic slump is abating.

U.S. data added to the positive view, with news that sales at retailers rose last month, while the number of workers filing new applications for jobless benefits fell for a fourth straight week last week.

“It looks like we are turning the corner. There is pretty clear evidence that the worst of the labor downturn has passed, but we still expect more job losses,” said Zach Pandl, an economist at Nomura Securities International in New York.

Although U.S. retail sales rose 0.5 percent in May, sales were partly boosted by increases in gasoline prices. That could add pressure to recession-weary consumers and shows the headwinds still facing a recovery.

Optimism for an economic recovery boosted U.S. stocks, and rising oil and commodity prices lifted resource shares. Oil prices extended a three-day rally to climb above $73 a barrel as the International Energy Agency revised its outlook for global oil demand higher for the first time since August..N

Global data has given increasing signals of a rebound from the deepest recession in six decades, driving stock markets sharply higher from a March trough.

However, markets remain concerned that huge government spending and central bank cash injections, led by the United States but mirrored in Europe and Japan, will spark inflation and undercut any budding rebound.

REBOUND COULD BE SLOW

A record slump in Japan’s first quarter gross domestic product also raised the odds that a rebound would be slow, and European officials said jobs would lag any return to growth.

Japan’s economy contracted a revised 3.8 percent in the first three months of the year, less than the initial 4.0 percent estimate, but still the fastest pace since World War Two. Weak capital spending and personal consumption are expected to remain a drag.

European Central Bank policymaker Christian Noyer said rising unemployment could still hurt consumption and growth prospects. German Deputy Finance Minister Joerg Asmussen echoed the jobs warning, even as he confirmed he saw Germany returning to growth of 0.5 percent in 2010.

Asmussen said that G8 ministers will discuss this weekend eventual exit strategies from crisis policies.

China has sought to cushion the blow from falling exports with a 4 trillion yuan ($585 billion) economic stimulus plan.

Data showed annual growth of fixed asset investment in Chinese urban areas accelerated to 32.9 percent in the January-May period from 30.5 percent in the first four months of the year, suggesting the stimulus is working.

In its budget update, Canada said it would run a C$50.2 billion ($45.6 billion) budget deficit this year, but forecast the economy would start to grow in the second half of the year.

Before the global downturn, Canada had been the only member of the Group of Seven industrialized nations to consistently run annual fiscal surpluses.

SOLID AUCTION

A solid auction of 30-year U.S. debt eased recent worries over the cost of financing the nation’s massive budget deficit as it attempts to climb out of recession.

Following Wednesday’s disappointing 10-year auction, most gauges of demand were strong in Thursday’s auction, soothing worries global appetite for U.S. debt was slipping.

“I would put myself in the category of slightly surprised; I think it’s much better than what the street was expecting,” said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.

In Washington, lawmakers accused the Treasury and Federal Reserve of trying to force Bank of America BAC.N to buy Merrill Lynch in the wake of Lehman Brothers' collapse, a charge that the bank's chief executive denied.

Fed Chairman Ben Bernanke and former Treasury Secretary Henry Paulson will be asked to testify at a later date.

Reporting by Reuters bureaux; Writing by Leah Schnurr; Editing by Eric Walsh

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