World economy out of "free fall"

By Chris Reese

NEW YORK (Reuters) - The world grouping OECD said on Friday the global economy was out of "free fall," offering hope of recovery late this year, but investors focused on risks to the U.S. credit rating from rising government debt.

Japan's central bank governor said new data now banished notions of the world's second-biggest economy "falling off a cliff" and Canada's finance minister saw "glimmers of hope."

The U.S. dollar dropped to a 2009 low as fears grew the United States could be at risk of losing its precious triple-A rating, which would have wide implications for global investment already throttled by the crisis.

Standard & Poor's stirred concern on Thursday by suggesting Britain could face a downgrade to its triple-A rating. The ratings agency cut its outlook for Britain to "negative" as debt nears 100 percent of gross domestic product.

"Is this a warning shot or is it the start of a trend? This is very dangerous territory," said Axel Merk, president and chief investment officer at Merk Mutual Funds.

Britain suffered more bad news on Friday, when an official report showed its economy shrank 1.9 percent in the first three months of the year, the sharpest quarterly fall since 1979.

Wall Street stocks .N finished slightly lower, the fourth session of losses, on worries about the U.S. budget deficit.

The White House said it did not believe the U.S. credit rating would be cut. Ratings agency Moody's Investor Service said on Thursday it was comfortable with the U.S. triple-A rating "but it is not guaranteed forever."