(Adds Wen on US Treasuries, use of reserves)
By Daisy Ku and Sumeet Desai
LONDON, Feb 1 (Reuters) - Chinese Premier Wen Jiabao said on Sunday he saw signs of recovery in the final days of 2008 after growth in the world's third largest economy slowed abruptly but indicated that further stimulus measures might be needed.
The global financial crisis has hit demand for Chinese exports, fanning fears of social unrest as factories are closed and millions of migrant workers lose their jobs.
"During the last 10 days of December it started to get better. The goods piled up in port started to decrease and the price of industrial products started to rise," Wen told a business audience at a dinner during a visit to London.
The government has already pledged 4 trillion yuan ($585 billion) over the next two years to help boost domestic demand. Work on projects including rebuilding the earthquake-hit southwest and improving road and rail links is under way.
Wen told the Financial Times that more might be needed.
"We may take further new, timely and decisive measures. All these measures have to be taken pre-emptively before an economic retreat," he said in an interview published late on Sunday.
A plan to enable the use of some of China's huge foreign currency reserves for domestic purposes is under discussion, he told the paper.
China's economic growth slowed to 6.8 percent in the last quarter of 2008, dragging down the annual rate of expansion to a seven-year low of 9.0 percent as the world's most populous country felt the impact of the global financial crisis.
China targets annual growth of eight percent or above in order to support its 1.3 billion population. Wen told his business audience that he would unveil stimulus measures for shipbuilding and textiles when he returns home.
Underlining his positive comments, he said 900 billion yuan in aggregate loans had been added to the Chinese economy in the first 20 days of January, more than double the figure for last November as a whole.
China swung into a deficit in 2008 after a huge burst of government spending in the year's final weeks to combat the economic slowdown, data published on Sunday showed.
MARKETS AND MORALITY
Wen said China's financial sector remained in good health.
"The financial sector in China has in the face of this crisis been affected to a certain extent, but generally speaking remains sound, healthy and stable," he told an audience of business figures at London's Natural History Museum.
Looking at the roots of the crisis, Wen said large financial institutions around the world had pursued profits and left the ordinary people to clean up the mess.
"To learn the lesson, we have to combine market developments and morality. Then perhaps we could have avoided the crisis we are going through."
Wen also spoke out about a "dangerous trend" towards protectionism as countries around the world struggle to respond to the crisis.
Speaking to the FT, Wen said China thought it was important to "stabilise" the U.S. Treasury bond market to help overcome the global crisis. But he added: "We will take into account China's own needs to maintain the safety and good value of our foreign exchange reserves."
The paper also said, without quoting Wen directly, that hopes that China would use a large chunk of its reserves to help recapitalise the International Monetary Fund were likely to be disappointed.
The Chinese premier is on the last leg of a European tour. He will hold talks on Monday with British Prime Minister Gordon Brown who is preparing to host a G20 summit in April bringing together leaders of the world's largest economies.
Earlier on Sunday British police arrested five pro-Tibet demonstrators in London protesting China's policies there.
The protesters, waving Tibetan flags, broke through police ranks as Wen arrived at the Chinese embassy in London. (Reporting by Daisy Ku and Sumeet Desai; Editing by Giles Elgood)