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U.S. TREASURY SOUNDS MOSTLY UPBEAT NOTE ON REST OF YEAR

SHARE U.S. TREASURY SOUNDS MOSTLY UPBEAT NOTE ON REST OF YEAR

The Treasury Department predicts interest rates will remain at current levels in the near term and that inflation in the Group of Seven industrialized nations will hover around 4 percent.

But, in a report to Congress, the agency said any further improvement this year in narrowing the U.S. trade deficit is "likely at best to be modest."Moreover, "the possibility of deterioration (in the trade deficit) next year cannot be excluded," the Treasury Department said.

The report on international economic and exchange rate policy also expressed concern about depreciation of the Japanese yen and the decline in the Tokyo stock market. "The G-7 will keep these developments under review," the report said.

On the inflation front, the document said, "monetary and fiscal authorities are, for the most part, likely to continue to pursue a fairly restrictive course" on interest rates.

"Consumer price inflation is forecast to ease somewhat in each of the major industrialized countries this year and to decline to slightly below 4 percent in the industrialized countries in aggregate," the report said.

The document was upbeat about the prospects of growth for the United States and the rest of the Group of Seven - Japan, West Germany, England, France, Canada and Italy.

"The economic expansion in the industrialied countries has been sustained for eight consecutive years," the report said. "Economic growth is slowing in several countries, but to more sustainable levels.

"Strong investment is providing a major stimulus to the G-7 economies, and the prospects for overall growth remain good," the document said.

"Inflation remains contained, reflecting the vigilance of authorities and the subsiding of several temporary factors last year, which placed upward pressures on inflation rates," the report said.

The report also sounded an upbeat note about Eastern Europe.

"The restructuring of Eastern European economies towards a market basis and the reunification of the German economies should contribute to improved global growth," the document said.

The report noted that economic policy coordination efforts by the G-7 nations "contributed importantly to the favorable performance of the world economy in the current expansion."