World Bank cuts forecasts

By Paul Thomasch and Louise Ireland

NEW YORK/LONDON (Reuters) - The World Bank and Organization for Economic Co-operation and Development offered dispiriting assessments of the world economy on Monday, although corporate sentiment surveys in Germany and Japan created some hope that recovery could be on the way.

The surveys from Japan and Germany still expressed caution but indicated businesses are starting to feel more upbeat.

Indeed, German business sentiment rose to a seven-month high in June.

Japan's tankan survey showed less pessimism among big Japanese manufacturing companies.

Investors still found plenty to worry about, however. Oil prices dropped by 4 percent, while European and U.S. stocks began the week with losses on questions about the potential strength of an economic recovery.

The S&P 500 stock index had lost 2.5 percent by mid-afternoon in New York.

European Central Bank President Jean-Claude Trichet cautioned that policymakers must remain alert to financial risks despite initial signs that the pace of economic decline had slowed.

"While there are first signs that the pace of economic weakening is decelerating, we must remain alert. We are in uncharted waters, and there are still risks of a sudden emergence of unexpected financial turbulence," he said.