(Repeat of item initially sent on Sunday, Feb. 8)
By Emily Kaiser
WASHINGTON, Feb 9 (Reuters) - A recent flurry of slightly less-dire economic news may say more about the healing powers of governments and central banks than the health of the economy.
Readings on the global manufacturing and services sectors inched up last week and there were signs of stabilization in the long-suffering U.S. housing market, leading some economists and investors to conclude the worst may be over.
But a closer look at the state of the global economy suggests the private sector still looks quite sickly, and the current quarter may be just as bad as the previous one. Public spending -- and the promise of more to come -- is about the only thing that is helping right now.
The U.S. Federal Reserve's ever-expanding lending programs have succeeded in driving down mortgage rates, shielding money market funds from collapse and reviving some corners of commercial lending.
Fed Chairman Ben Bernanke can point to that progress when he meets with finance leaders from the Group of Seven rich nations in Rome beginning on Friday. But he won't carry a very cheery economic message.
Consumer demand is down sharply in the United States, as well as in much of Europe and Japan. Business spending is cautious at best. Unemployment is climbing higher.
Given that gloomy backdrop, banks remain extremely reluctant to lend, and your tax money is increasingly required to fill the void. Expect to hear a lot about that this week.
The Bank of England will launch a program to buy commercial paper issued by British companies; the U.S. Congress will probably pass a stimulus package worth between $800 billion and $900 billion; and Treasury Secretary Timothy Geithner will lay out ideas on how best to fix the banks.
Jonathan Loynes, chief European economist at Capital Economics, said the fact that the BoE was planning to bypass banks and lend directly to companies may be the "first admission that banks are not going to get back to normal conditions in the foreseeable future."
The same is true for banks in the United States. President Barack Obama and his economic advisers recognize they must do something soon to put financial firms on stronger footing in order to get private lending going again.
Geithner's announcement on Monday may be short on detail. White House Press Secretary Robert Gibbs said last week that Geithner would lay out ideas and principles rather than precise plans, and the Treasury would work with Congress on how best to accomplish the goals.
HOW BAD?
The primary goal of all the government intervention is to shorten the recession and revive growth.
While no one needs a reminder that the developed world is in the midst of its worst synchronized slump in decades, figures this week are expected to show that euro zone output contracted by 1.1 percent in the final quarter of 2008 compared with a year earlier.
Stock markets have begun to discount some of the bad news and rally in the hope of better times ahead. But forward-looking indicators are casting doubt on hopes that the fourth quarter was the weak point in the cycle.
The latest leading indicator reports from the New York-based Economic Cycle Research Institute and the Organization for Economic Cooperation and Development both showed deterioration.
"Amid mounting optimism of investors that the global economy is bottoming, these data suggest no such thing is occurring," said Societe Generale strategist Albert Edwards. "Indeed they are catastrophically weak."
The question is how much governments and central banks are prepared to spend to reverse that course, and whether it will be enough to fill the growing output gap.
The U.S. Congress is grappling with how to trim a spending and tax cut plan that swelled to more than $900 billion, spooking many Republicans and some of the more conservative Democrats.
Obama has said he wants a bill ready for his signature by the end of this week. The head of his Council of Economic Advisers, Christina Romer, said if Congress meets that target, the economy should begin to turn the corner in the third or fourth quarter.
Ethan Harris, an economist with Barclays Capital in New York, said he expects policy-makers ultimately to prevail in their recession-fighting efforts.
"We are in the middle of a grand experiment," he said. "Can the biggest monetary and fiscal stimulus in modern times overcome the biggest economic and financial crisis in modern times? If we weren't some of the lab rats, we would be enjoying ourselves." (Editing by Dan Grebler)