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Finance chiefs from the Group of Seven predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.

“Economic activity should begin to recover later this year amid a continued weak outlook, and downside risks persist,” the G-7 finance ministers and central bankers said in a statement yesterday after talks in Washington. “Recent data suggest that the pace of decline in our economies has slowed, and some signs of stabilization are emerging.”

While more upbeat than when they met in February, the officials are wary of declaring an end to the deepest slump since World War II so long as toxic assets continue to impede bank lending. They pledged to “take whatever actions are necessary to accelerate the return to trend growth” without announcing any new steps.

“We’ve been in a deep financial crisis, and you don’t bounce out of this like a normal recession,” Harvard University Professor Kenneth Rogoff said in an interview with Bloomberg Television in Washington. “There will be a period of slow growth.”

Two months ago the G-7 predicted the “severe downturn” would persist through most of this year. Since then their economies have appeared to steady. Data released yesterday alone showed purchases of new homes in the U.S. were higher than forecast in March and German business confidence rebounded from a 26-year low this month.

U.K., Germany Shrink

Still, the U.K. economy shrank in the first quarter by more than anticipated, and Bundesbank President Axel Weber said Germany’s economy probably contracted 3 percent over the same period, which would be the most on record.

“There are signs that the pace of deterioration in economic activity and trade flows has eased,” U.S. Treasury Secretary Timothy Geithner told reporters. “We are right to be somewhat encouraged, but we would be wrong to conclude that we are close to emerging from the darkness.”

Company reports this week highlighted how some are beginning to escape the gloom as others falter. Caterpillar Inc., the world’s largest producer of bulldozers, posted its first quarterly net loss in 16 years and Germany’s Robert Bosch GmbH, the biggest car-parts maker, projected a 2009 loss. Meantime, AT&T Inc., the biggest U.S. phone company, posted first-quarter profit that topped forecasts and Debenhams Plc, the U.K. retailer, announced improving sales and margins.

IMF Losses

Policy makers identified the impaired balance sheets of banks as the biggest barrier to recovery. The International Monetary Fund calculates global losses tied to bad loans and securitized assets may reach $4.1 trillion next year. It estimates banks face further writedowns of $550 billion in the U.S. and $750 billion in the euro area.

“The No. 1 issue is to repair the financial system,” Canadian Finance Minister Jim Flaherty said in an interview. U.K. Chancellor of the Exchequer Alistair Darling said, “If we do not fix the banks, we will not fix the economy.”

The Federal Reserve yesterday released the methods it used to conduct stress tests of the biggest U.S. banks, while stopping short of any details that signaled how much new capital regulators will demand instant payday loan. The results of the examinations are due to be released May 4.

Bank Troubles

Japan’s second-largest bank, Mizuho Financial Group Inc., two days ago reported a wider loss than forecast as bad loans spiraled. Morgan Stanley on April 22 reported a bigger-than- estimated $177 million loss as real estate and debt-related writedowns overwhelmed trading gains.

At the same time, banks are now more willing to lend than at any time since before the collapse of Lehman Brothers Holdings Inc. in September, according to the gap between the London interbank offered rate and the expected average federal funds rate over the next three months.

The G-7 said it will “act as needed” to restore lending, provide liquidity support, inject capital into financial institutions, protect savings and address stressed assets. It repeated that it will “ensure the soundness” of key financial companies.

The fact that recovery isn’t yet assured means policy makers continue to deploy emergency fiscal and monetary measures. The Group of 20 economies have committed more than $2 trillion in tax cuts and spending increases, while top central banks have reduced interest rates to record lows.

Trichet Warning

“It’s no time for complacency,” European Central Bank President Jean-Claude Trichet said. “We have to continue to work very, very actively.”

An IMF study of 122 recessions concluded that synchronized slumps last 50 percent longer than more localized ones. It also found that downturns sparked by financial busts outlive those caused by tight economic policies, oil shocks or sliding exports.

The IMF this week predicted the global recession will be deeper and the recovery weaker than it thought in January as it cut its forecast for each of the G-7 economies this year and next.

The human cost of the crisis is also growing, with the IMF and World Bank yesterday warning that 90 million more people may be “trapped in extreme poverty” this year. Unemployment is also set to rise globally from 5.3 percent to 8.5 percent, the highest in more than a decade, as companies such as Yahoo! Inc. cut staff, according to JPMorgan Chase & Co.

‘Major Role’

In a sign of how important emerging markets are to solving a crisis caused by rich nations, the G-7 officials met with counterparts from the G-20. “Many countries are now playing a major role in the global economy and we welcome their contribution to the collective international effort to promote recovery,” the G-7 said.

The group repeated that “excess volatility and disorderly movements in exchange rates have adverse implications” for economies and markets. It again welcomed China’s commitment to a “more flexible” currency and said that should encourage a continued appreciation of the yuan in effective terms.

The officials also said they would refrain from “raising new barriers” to trade even after the World Bank said that the U.S., U.K., Germany, France and Italy had all introduced protectionist measures since the G-20 made a similar commitment on April 2.

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Europe’s manufacturing and service industries contracted at the slowest pace in six months in April, signaling the worst of the recession may be over.

A composite index of activity in both industries posted its biggest gain on record, rising to 40.5 from 38.3 in March. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction. Economists forecast an increase to 38.9, according to the median of nine estimates in a Bloomberg News survey.

Europe is mired in its deepest recession since World War II as the global financial crisis derails purchases of cars and machinery, forcing companies to scale back output and fire workers. Industrial production in Europe contracted by the most on record in February and unemployment rose to the highest in almost three years.

“The economic slump is only slowing down a little bit and growth won’t resume before the fourth quarter,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “However, leading indicators may bottom out now.”

The manufacturing index rose to 36.7 from 33.9 in March, while the services index increased to 43.1 from 40.9, Markit said. A composite index measuring new orders showed the weakest contraction in six months. The euro rose almost half a cent to $1.3066 after the report was published.

‘Encouraging Start’

“This represents an encouraging start to the second quarter and suggests a return to stability in the euro area by the end of the year is possible,” said Chris Williamson, chief economist at Markit payday loans. “However, the ongoing severity of the situation should not be underestimated: the latest numbers are still consistent with a double-digit annual rate of decline of manufacturing output.”

European industrial orders fell 34.3 percent in February from a year earlier, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today.

The International Monetary Fund predicts the euro-region economy will contract 4.2 percent this year, the most since World War II.

“Even once the crisis is over, there will be a difficult transition period, with output growth appreciably below rates seen in the recent past,” the Washington-based fund said yesterday in its semi-annual World Economic Outlook.

The economic slump has prompted the European Central Bank to embark on the most aggressive series of interest-rate cuts in its 10-year history. It has lowered the benchmark rate by 300 basis points since early October to 1.25 percent, a record low.

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Regulators conducting the stress tests on the 19 largest U.S. banks are increasingly focusing on the quality of loans the companies made after finding wide variations in underwriting standards, a regulatory official said.

Supervisors concluded that banks’ lending practices would need to be given as much weight as macroeconomic scenarios after finding a wide variation in standards for mortgages and other loans as about 200 examiners pored through the portfolios, the official said.

The expanded criteria for the assessments will allow regulators to identify how much of each bank’s vulnerabilities stem from the economy’s deterioration, and how much comes from management decisions. Treasury Secretary Timothy Geithner has said he’s prepared to make management changes in any firms requiring “exceptional” amounts of fresh taxpayer funding.

“There was a heavy assumption” that soaring loan defaults in recent months were caused by the recession, said Kevin Petrasic, who served at the Office of Thrift Supervision from 1989 to 2008 and is now an attorney at law firm Paul Hastings in Washington. “If they find out that these were business decisions, that, in an odd way, is probably a good sign because you can fix this. There are very hard lessons to be learned.”

The official’s remarks provide insight into the release April 24 on the regulator’s methodology for the tests. Supervisors are addressing an error made two years ago when basing foreclosure projections on economic assumptions and concluding that poorly written loans may default regardless of the economy’s performance.

Capital Assessments

The person also said the tests don’t amount to solvency judgments, noting that estimates of each bank’s losses over the coming two years won’t necessarily equal the amount of new capital it needs to raise.

The goal of the reviews is to keep the major financial institutions lending over the next two years, and to determine how much capital they might need should the economic downturn worsen. Assumptions about capital will be forward-looking, the official said.

Supervisors will take into account how much capital each company now has, the ability to retain earnings over the next few years, access to private capital in the future and how aggressively they have already written down some assets.

Federal Reserve officials are coordinating the exams, dedicating a staff of about 140 people to the effort. All told about 200 regulatory officials are involved, with information percolating up from front-line bank examiners.

Bank Regulators

While the tests are a central element of the Obama administration’s financial rescue plan, the Treasury charged the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., and Office of Thrift Supervision to conduct them.

Some of the findings on how portfolio quality varied will be revealed April 24 when supervisors release the white paper on the methodology. Final results of the tests will be released May 4. No decision has been made yet on how to publish the results, with some regulators concerned about a lack of uniformity in the releases if each firm discloses its own results, the official said direct faxless payday loans.

The methodology paper will discuss what supervisors describe as a propensity for loss among loan portfolios. Some categories of lending, such as credit cards, are highly correlated with macroeconomic data such as rising unemployment.

Repayment Ability

More variance might be expected in other kinds of assets, such as commercial real estate or mortgages, where assumptions about clients’ ability to repay played a larger role. There, default rates have soared on some products because they were originated with little regard for a borrowers’ underlying payment ability.

U.S. supervisors failed to prevent the plunging credit standards that surrounded the home-lending boom earlier this decade. They also underestimated how the housing shock would reverberate through the financial system, tightening credit, and worsening overall economic conditions.

In a review of the crisis, Phillip Swagel, former assistant Treasury secretary of economic policy, said Treasury and Fed officials in May 2007 predicted that “the foreclosure problem would subside after a peak in 2008.”

Swagel wrote in a March 30 Brookings Institution paper that supervisors realized they “missed” the fact that “problems were baked into the mortgage at origination” and that the quality of the underwriting was another issue on top of how credits respond to changes in the broader economy.

Delinquency Rate

Foreclosure rates on subprime mortgages soared to 13.7 percent in the fourth quarter of 2008, up from 8.65 percent the same quarter a year earlier, according to the Mortgage Bankers Association. Mortgage delinquencies increased to 7.9 percent of all loans in the final three months of last year, the highest level in records going back to 1972.

Geithner announced the stress tests in February, including two economic scenarios. Under the assessments’ “more adverse” scenario, the unemployment rate is seen rising to 10.3 percent in 2010 from 8.5 percent currently.

Bank of America Corp., the largest U.S. lender by assets, fell the most in almost two months of New York trading April 20 after putting aside $6.4 billion to cover a growing pool of uncollectible loans. Kenneth D. Lewis, chief executive officer of the Charlotte, North Carolina-based bank said unpaid loans are rising because of the weak economy and higher unemployment.

Bank of America is one of the 19 firms, along with Citigroup Inc., Capital One Financial Corp., GMAC LLC and regional lenders including Keycorp and Regions Financial Corp.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. have said they plan to return the taxpayer funds they’ve received under the Treasury’s $700 billion Troubled Asset Relief Program.

Geithner said in an interview with the Wall Street Journal published April 20 “we want to make sure that the financial system is not just stable, but also not inducing a deeper contraction in economic activity. We want to have enough capital that it’s going to be able to support a recovery.”

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China’s gross domestic product, battered by collapsing exports, grew at the slowest pace in almost 10 years, probably marking the low point for the world’s third-biggest economy.

GDP expanded 6.1 percent in the first quarter from a year earlier, after a 6.8 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure was below the 6.2 percent median estimate of 13 economists surveyed by Bloomberg News.

Growth in industrial production and investment accelerated, adding to evidence that Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus plan is working. The Shanghai Composite Index fell from an eight-month high amid speculation that Wen will have to do more to increase consumption and wean the economy from a dependence on exports.

“They’ve stabilized the economy and now the challenge is to think about how to support consumption and how to support private investment,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “We’re still looking for stimulus measures to encourage consumption.”

Today’s report follows a statement from U.S. Treasury Secretary Timothy Geithner that China isn’t a currency manipulator. His stance eases pressure on China to allow its currency to rise, which would hurt efforts to revive exports.

Domestic Demand

The yuan traded at 6.8314 against the dollar as of 1:03 p.m. in Shanghai, from 6.8313 before the announcement. Shanghai’s benchmark stock index fell 0.1 percent, trimming its gain this year to 39 percent, the second-best performance among 88 indexes tracked by Bloomberg.

“While we are facing difficulty in relying on external demand, we have to turn back to domestic demand, including consumer spending and investment to sustain growth,” said statistics bureau spokesman Li Xiaochao.

Li said that while the government is ready to respond to changes in the domestic and international economies, China is yet to fully implement existing stimulus measures.

Industrial production expanded 8.3 percent in March from a year earlier, up from 3.8 percent in the first two months, and urban fixed-asset investment surged 30.3 percent, the statistics bureau said. Retail sales rose 14.7 percent in March.

“China’s demand for basic materials will continue to be driven by the effects of Chinese urbanization, infrastructure development and, increasingly, Chinese domestic demand,” said Andrew Michelmore, the chief executive officer of OZ Minerals Ltd., the world’s second-largest zinc producer.

Drag From Exports

China’s expansion lagged behind its 9 percent growth for all of 2008 and 13 percent gain in 2007. Growth also failed to reach the 8 percent level that the government deems necessary to create enough jobs.

“Exports will continue to drag on growth at least until the final quarter of the year,” said Mark Williams, an economist with Capital Economics Ltd cash loans till payday. in London. Any recovery this year, will be “lackluster at best.”

The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

The expansion contrasts with recessions in economies around the world. The Organization for Economic Cooperation and Development predicts 6.3 percent growth for China this year, compared with a 4 percent contraction in the U.S. and a 6.6 percent decline in Japan.

In China, companies say the stimulus package is helping to revive growth. General Motors Corp. raised its forecast for the nation’s auto sales this year after the government took steps to spur demand and provided subsidies in rural areas.

Social Safety Net

The world’s most populous nation is trying to rebalance growth by improving welfare and health care to give Chinese the confidence to save less and spend more. The State Council issued this month an 850 billion yuan health-care plan, including building at least one hospital in every county and expanding medical insurance coverage to 90 percent of the 1.3 billion population by 2011.

The government plans 20 billion yuan of subsidies this year for rural purchases of televisions and refrigerators and says it will increase welfare spending by 29 percent.

Today’s report contrasts with a year earlier when the economy expanded 10.6 percent and Premier Wen said that inflation running at more than 8 percent was the nation’s biggest problem.

Consumer prices fell 1.2 percent in March from a year earlier, compared with a drop of 1.6 percent in February. Producer prices fell 6 percent, the most since Bloomberg data began in 1999.

Lending Boom

Cooling inflation provided the People’s Bank of China with space to lower the one-year lending rate by 216 basis points to 5.31 percent last year and reserve requirements by 2 percentage points to 15.5 percent for large banks.

The bank also lifted caps on lending toward the end of 2008. As a result, new loans jumped more than six times to 1.89 trillion yuan ($277 billion) in March from a year earlier, raising concern among some economists that the cash flowing into the economy will inflate asset bubbles, and promote wasteful spending.

“The next policy move needs to be taming credit growth and local governments’ investment drive,” said Wang Tao, an economist at UBS AG in Beijing. “This is needed to reduce the risk of massive resource misallocation, asset-price bubbles and damage to the banking system.”

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Fabless semiconductor company Kleer on Wednesday named Steven Humphreys president and chief executive.

Cupertino-based Kleer said Humphreys succeeds Levent Gun, who will continue to serve for several months in a support role to ensure a smooth and orderly business transition.

Prior to joining Kleer, Humphreys was chairman of HeadThere Inc, a provider of mobile video telepresence robots for assisted living in overseas markets, and was also chairman of Robotic Innovations International Inc.

He is also on the boards of ActivIdentity Inc direct faxless payday loans. (NASDAQ:ACTI) and SCM Microsystems Inc. (NASDAQ:SCMM). Previously, he was CEO both Fremont-based companies.

Kleer said it focuses on wireless audio technology that combines "high quality audio and robust ISM band coexistence with low power consumption to address portable, home and automotive audio markets."

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The board at Bank of America Corp. has authorized the payment of $713 million in dividends to the U.S. government under the Troubled Asset Relief Program.

Bank of America received $45 billion in federal funds from the program, which is designed to thaw the credit markets. Some $20 billion of that amount came as part of Bank of America’s purchase of troubled brokerage Merrill Lynch & Co health insurance. Inc. on Jan. 1.

Charlotte, N.C.-based Bank of America (NYSE: BAC), the fourth largest bank in the Philadelphia area by deposits, paid its first installment of $402 million in dividends to the federal government in February.

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The Leadership Louisville Center has begun accepting applications for the Ignite Louisville Class of 2010.

The six-month class will begin in October 2009 and run through April 2010.

It is geared toward young professionals who want to develop leadership skills, network, learn about the community and improve critical thinking skills.

Class members also will participate in a service project to explore a community issue, the Leadership Louisville Center said in a news release car insurance.

Participants must be between the ages of 25 and 39.

The program is sponsored by Norton Healthcare Inc.

Applications can be found at www.leadershiplouisville.org. They will be accepted until May 18.

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Solutia Inc. has agreed to sell its nylon business to a New York-based private equity firm, the Town and Country company said today.

At the closing of the sales, which is expected by the end of June, Solutia will receive $50 million in cash and a two percent equity stake in a new company formed by the private-equity firm SK Capital Partners II LP.

Solutia said it also will receive $4 million in deferred cash payments, paid annually in $1 million increments starting in 2011.

With the money from the sale, the company said, it plans to pay down some debt.

Solutia makes a range of products, including chemicals and window films business cards. On June 30, it announced it would review the nylon business and possibly sell it.

"We do not believe the operations, product profitability and long-term strategy of Integrated Nylon are aligned with our specialty businesses," Solutia said in a regulatory filing on Feb. 19.

The sale includes all five of the nylon business’ manufacturing plants in: Alvin, Texas; Decatur, Ala.; Foley, Ala.; Greenwood, S.C.; and Pensacola, Fla.

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