EU backs new banking rules

European Union leaders agreed on Friday to more steps to avert a repeat of the banking crisis and the IMF said 2010 might deliver stronger growth than earlier forecast, adding to a recent run of better economic news.

The EU leaders backed the creation of a European system of financial supervisors, but gave them only limited powers.

The agreement, outlined in a draft summit declaration obtained by Reuters, followed U.S. President Barack Obama's announcement on Wednesday of what he said was the biggest reform of U.S. financial supervision since the 1930s.

In the draft declaration, the leaders said: "The European Union, like the rest of the world, still faces the effects of the deepest and most widespread recession of the post-war era. It is imperative for the EU to continue to develop and implement the measures required to respond to the crisis.

The crisis that struck nearly two years ago when a long-running global credit boom went bust is destroying jobs in economies around the world. Obama and other world leaders have vowed to crack down on the economic malfeasance many say exacerbated the crisis.

In one of the first major financial crimes prosecutions of Obama's administration, Texas billionaire Allen Stanford was indicted in U.S. federal court on Friday on charges he orchestrated massive fraud through his bank in Antigua.

SENTIMENT BETTER BUT FRAGILE

The International Monetary Fund suggested it may lift its 2010 growth forecast for the world economy, adding to the recent run of upbeat economic news that has cheered investors. But it steered clear of suggesting signs of slowing economic decline amounted to a recovery. 

After "an unprecedented global economic contraction ... signs are emerging that the rate of output decline has moderated" IMF First Deputy Managing Director John Lipsky told a conference in Turkey.

"I expect that in the coming weeks we will revise our growth projections modestly upward, mainly with regard to 2010" Lipsky said.

California, the largest U.S. state, was trying to close a $24.3 billion (14.8 billion pound) budget gap on Friday, when Moody's Investors Service warned that it faced a "multi-notch" downgrade in its credit rating if its legislature does not produce a budget quickly.

U.S. stocks closed mixed, with positive comments on Microsoft boosting technology shares for the day, but major indexes were down for the week. [ID:nN19298116] The MSCI world stocks index .MIWD00000PUS edged almost 2 percent higher, following Asian equities .MIAPJ0000PUS, although the indexes were down on the week. <MKTS/GLOB>

Oil prices fell 2.5 percent to below $70 a barrel, pulled lower by a sell-off in the gasoline market.

Analysts warned that sentiment remains fragile.

"We still have not seen economic data that indicated an economic expansion has taken hold" said Michael Sheldon, chief market strategist at RDM Financial in Connecticut, who warned of a pullback in prices over the coming weeks.

The IMF is scheduled to present updates on July 7 to its April forecast for the world economy to contract 1.3 percent this year in the deepest post-World War Two recession.

STEEL OUTPUT CREEPS UP 

There were more signs that the trillions of dollars governments around the world have poured into economic stimulus have provided somewhat of a safety net.

Mexico's central bank cut its key interest rate by 50 basis points to 4.75 percent and said its easing cycle is nearly over as signs of improvement in the economy emerge.

Global steel production edged up in May from April after going into a nosedive late last year when demand for new buildings and manufactured goods collapsed. The fall in shipments to China widely viewed a driver of any world economic recovery was the smallest since January.

In Britain, where the bursting of a house price bubble has deepened economic pain, homebuilder Taylor Wimpey said the market has stabilized in the past six weeks and it might increase the number of new sites in the second half.

In tech, shares of Canada-based Blackberry maker Research in Motion fell nearly 2 percent, a day after the company issued an outlook that was below expectations [ID:nN18406026], and smaller crowds greeted Apple's new iPhone.[ID:nN19410667]

But Goldman Sachs added Microsoft to its Americas "conviction buy" list on improving prospects for its revenues.

The financial crisis erupted after years of easy credit encouraged banks and investors to take more risks and policymakers are intent on tightening supervision.

The EU's financial supervisory proposals involve creating three pan-European regulatory bodies next year, and a board to monitor risks.