May 25, 2009 / 3:36 AM / 10 years ago

Japan raises outlook, North Korea raises risk concerns

WASHINGTON (Reuters) - Japan raised its economic outlook for the first time in three years on Monday, and an important measure of German business sentiment rose in May, in further signs the worst of the global recession may be over.

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange May 25, 2009. REUTERS/Remote/Pawel Kopczynski

But news of North Korea’s second nuclear test, of a significantly more substantial device than in a first test in October 2006, stoked geopolitical concerns, hitting the yen on a day markets were quieted by holidays in Britain and the United States.

European shares .FTEU3 closed slightly higher, with by Sanofi Aventis leading pharmaceuticals higher after winning a U.S. contract. Oil dipped toward $61 a barrel. And Canada said its federal deficit this year will be "substantially more" than the $30.1 billion (C$33.7 billion) predicted in January.

North Korea’s nuclear test was condemned by global leaders and triggered an emergency U.N. Security Council meeting.

“North Korea’s nuclear and ballistic missile programs pose a grave threat to the peace and security of the world, and I strongly condemn their reckless action,” U.S. President Barack Obama said.

Analysts said the test was more a negotiating tactic than an imminent threat to security on the peninsula. European and Asian stock markets generally shrugged off news of the nuclear test, as investors focused on company news in thin trading.

In one piece of news taken as a sign of thawing in financial markets, India’s top mobile telephone operator, Bharti Airtel (BRTI.BO), and South Africa’s MTN Group (MTNJ.J) have revived merger talks to create a $61 billion telecoms giant spanning Africa, Asia and the Middle East.

German think tank Ifo’s business climate index, based on a poll of 7,000 firms, rose to 84.2 in May from 83.7 in April but below a consensus forecast for 85.0, cheering investors even as it underscored the weakness of current business conditions.

“This is a further clear signal that the German economy’s tailspin has ended. The recession has lost its velocity. It could even be over by the autumn,” Commerzbank economist Joerg Kraemer said. “No one should overestimate the strength of the upturn. It will be an expansion without any real power.”

CAUTIONARY COMMENTS

Canadian Finance Minister Jim Flaherty said the country’s deficit this year will be “substantially more” than the C$33.7 billion ($30.1 billion) predicted in the January budget, which analysts had called optimistic. He blamed the economic slowdown and lower tax revenues.

In Tokyo, the government raised its outlook for Japan’s economy for the first time in three years, saying the pace of recession was slowing as exports and industrial output appeared to be near the bottom.

Previously, the government had said the economy was worsening rapidly and in a severe state.

Bank of Japan Governor Masaaki Shirakawa also said both the Japanese and world economies appeared to be bottoming out but any recovery would be mild because it would take time to get rid of boom year excesses.

European Central Bank governing council member and German Bundesbank President Axel Weber said there were growing, but only sporadic, signs the economic decline in Germany and euro zone was ebbing.

“There is definitely hope that the euro zone economy will gradually stabilize in the later part of 2009,” he said.

Joaquin Almunia, the EU’s economic and monetary affairs commissioner, said European banks need more recapitalization than U.S. banks and should be subjected to stress tests along the lines of those conducted by Washington.

Market regulators in China and Australia said they would relax restrictions imposed during the worst of the financial crisis, suggesting they think the market recovery is on solid ground. Thai officials also said the worst may be over.

Oil prices fell toward $61 a barrel, but remained near recent highs, before an OPEC meeting in Vienna on Thursday at which ministers were expected to make no change to oil supply. News that Nigerian militants breached an oil pipeline in the Niger Delta failed to push prices higher.

In the United States, the Federal Reserve is likely to keep interest rates near zero for a while, Fed Vice Chairman Donald Kohn said over the weekend.

Reporting by Reuters correspondents around the world; Editing by Andrea Ricci and Leslie Adler

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