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European Bank Chiefs See Potential for Pickup

The head of the European Central Bank and some other central bankers said Monday the world's economy is still slowing, but suggested a turning point could be near as massive fiscal stimulus packages, low interest rates and cheaper energy prices bolster prospects for growth.

"We're approaching a moment where we might have a pickup," said European Central Bank president Jean-Claude Trichet, in his most optimistic assessment to date of tentative signs of stabilization in some markets. He cited a modest rebound in corporate bond markets as one positive sign. Mr. Trichet spoke to reporters on behalf of participants in a meeting of central bankers from the world's leading economies at the Bank for International Settlements in Basel, Switzerland

Mr. Trichet also suggested investors, who last week drove major U.S. stock indexes to 12-year lows, are underestimating the significance of government efforts. Policy makers worldwide have made "a very, very strong commitment ... not to let any systemic institution go under," Mr. Trichet said. This "may not be fully priced in by the market."

Economic policy makers from around the world are jockeying for position ahead of a gathering of finance ministers and central bankers from the Group of 20 nations -- the major industrialized and emerging market economies -- this weekend in preparation for a summit of the G-20 heads of state on April 2. The U.S. is pressing for more aggressive government spending to lift the global economy; others seek to use the meetings to restructure global financial regulation.

People's Bank of China Vice Governor Yi Gang said Monday the fiscal stimulus measures announced by China so far are appropriate and already seem to be working. "At this point, I think the current package of the fiscal stimulus is sound and it seems already effective," Mr. Yi told reporters in Switzerland. "So at this point, I think the current stimulus package is fine."

A bit of positive news underscored central bankers' optimism Monday. Interest rates on euro zone household and corporate loans fell markedly in January, ECB figures showed. Rates on business loans for up to a year fell to 4.73% from 5.38%, while the average interest rate on a popular mortgage type slipped to 4.39% from 5.09%. The ECB has cut its key rate to 1.5% from 4.25% in July. Policy makers will welcome further evidence their cuts are feeding through to the real economy.

Central banks worldwide, including the U.S. Federal Reserve, have taken rates closer to zero and launched a bevy of lending programs aimed at goosing growth. The Bank of England last week lowered its policy rate to 0.5% and launched a £75 billion program to unclog credit markets by buying assets directly.

But markets remain tense. A key barometer of financial-sector health -- the London interbank offered rate -- rose for the 10th consecutive day Monday. The three-month dollar Libor, a benchmark for the rates at which banks lend to one another, has fallen markedly since it peaked at 4.8187% on October, as central bank and government programs propped up confidence. But amid ongoing money-market tension, the rate rose to 1.3125% Monday from Friday's 1.2925%.

After the BIS meetings, Polish central bank governor Slawomir Skrzypek also said Monday he does not see "a risk for recession in Poland" and stressed the country's banking system remains "sound." Fears of a full-blown crisis in eastern Europe have battered the currencies of countries across the region and worried analysts who contend western European banks could face whopping losses on investments in the east.

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