Robert Zoellick said the world was going through a "multi-speed recovery" led by developing countries [Reuters]

Robert Zoellick, the head of the World Bank, has warned that markets have been pushed into a new danger zone that policy makers have to take seriously.

Speaking at the Asia Society dinner in Sydney, Zoellick said, "What's happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries."

"I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone,"  he said.

"I don't say those words lightly ... so that policymakers recognise and take it seriously for what it is."

Zoellick's comments followed a turbulent week on world markets prompted by concerns over the eurozone debt crisis and the weakness of the US economy.

Asian markets close higher

World stocks climbed further out of their August hole on Monday, lifted by signs of earlier-than-expected recovery in Japan and a growing belief that shares may now be cheap.

MSCI's all-country world stock index , a broad measure of global equity health, was up 0.6 percent, ratcheting up roughly a six per cent gain since hitting an 11-month low last Thursday.

The pan-European FTSEurofirst 300 stocks index was up half a per cent.
   
Shares in Asia were boosted by data showing Japan's economy shrank less than expected in April-June following March's earthquake and tsunami

Zoellick said process of dealing with competitive issues in the eurozone have tended to be done "a day late" [AFP] 

As a result, Asian markets made solid gains in morning trading on Monday. Tokyo's benchmark Nikkei average closed up 1.4 per cent at 9,086.41, while the broader Topix gained 1.2 per cent to 777.12.

Hong Kong shares traded higher for a second-straight session on Monday, the Hang Seng Index closed up 3.26 per cent at 20,260.1, lifted by the China Enterprise Index, which closed up 4.7 per cent at 10,944.17 points.

The Shanghai Composite Index closed up 1.3 per cent at 2,626.77, led by banks on expectations that the central bank will slow the pace of monetary policy tightening.

Australian stocks gained momentum in afternoon trade to close 2.6 per cent higher on Monday as investors hunted for bargains after panic over debt crises and a potential recession subsided offshore.

Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the eurozone have tended to be done "a day late", leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.

"That [worry] has accumulated and so we're moving from drama to trauma for a lot of the eurozone countries," he said.

On the US, Zoellick said it was not fears that the world's biggest economy faced an imminent problem, but "frankly that markets are used to the United States playing a key role in the economic system and leadership".

He said the US government needed to extend cuts from discretionary spending to programmes such as social security.

"Until they make an effort on those programmes, there is going to be continued scepticism about dealing with long-term spending."

New source of growth

Zoellick said while market confidence has been hit, the real issue was whether this will spread to business and consumer confidence, something that was still unclear.

He also said that the global economy was going through a multi-speed recovery, with developing countries now being the source of growth and opportunity.

"What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world ... so this is a very rapid change in a relatively short span of time in historical terms," he said.

On China, Zoellick said the appreciation of the yuan would be constructive, especially in helping tackle the country's inflationary pressure.

On Australia, he said the country was in a much better position than other developed countries because it undertook structural reforms.

On the fiscal side, he noted Australia's debt was only seven per cent of gross domestic product and taking
advantage of its position in the Asia Pacific.

Source: Agencies