Recovery rally may be racing too fast

By Emily Kaiser

WASHINGTON (Reuters) - The global economic recovery rally may be getting ahead of reality.

Investors have begun venturing out of safe-haven shelters such as the U.S. dollar and government bonds, something policy-makers hope is a reflection of growing confidence that the world economy is on the mend.

But one side effect is that borrowing costs are going up, making it more expensive for people to buy homes or to invest in their businesses. Some analysts worry that could smother the recovery before it gets going and put pressure on central banks and governments to pour even more public money into the economy.

Last week, the price of oil soared to a six-month high, the U.S. dollar fell to a five-month low and U.S. government bonds went on a wild ride that at one point drove the gap between short- and long-term rates -- known as the yield curve -- to the widest level on record.

"Watching 10-year Treasury yields shoot higher over the last two weeks, I couldn't shake the sinking feeling that we may be watching the end of the recovery party," said Scott Anderson, senior economist at Wells Fargo.

"I fear if yields rise much further, the green shoots will not just wilt, but turn brown and die, forcing us to yet again downgrade our outlook for the economy."

Yields fell on Friday, but the volatility provides an uncomfortable setting for U.S. Treasury Secretary Timothy Geithner's first official trip to China for talks on Monday and Tuesday.

Geithner will be trying to reassure one of the largest holders of U.S. government debt that the United States will move swiftly to get its debt under control once a recovery begins.