The International Monetary Fund (IMF) said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilises and the pace of contractions from the US to Japan moderates.

The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 per cent in 2010, compared with its April projection of 1.9 per cent growth.

A contraction this year will be 1.4 per cent, worse than an April forecast for a 1.3 per cent drop, the IMF said.

The improved outlook for next year boosted US stocks. The forecasts reflect differing stages of recovery across the globe, with emerging economies including China helping pull the world out of the worst recession in six decades, while Europe lags behind the US and Japan. The fund warned the pickup is likely to be "sluggish" and called repairing the international banking system a priority.

"The global economy is still in recession, but a recovery is coming," IMF chief economist Olivier Blanchard said, adding that unemployment may keep rising worldwide into 2010.

Stocks and Treasuries rose after the IMF released its new forecasts and an updated outlook for the global financial system. The fund also called on policy makers to start crafting plans to exit such support measures in order to tame inflation concerns and take steps toward balancing public finances.

- BLOOMBERG