OECD sees economic momentum back on track

PARIS, Mar 6 (Reuters) Economic momentum on both sides of the Atlantic is now largely back in line with OECD projections but some of the factors sustaining buoyant growth may not continue to do so, the Paris-based think-tank said in an interim assessment on Monday.

OECD chief economist Jean-Philippe Cotis said ''stretched valuations'' in some housing markets were a source of risk, but noted that recent U.S. data pointed to a sharp rebound in the first quarter of 2006.

He said the Organisation for Economic Co-operation and Development projected first quarter growth in the United States to be 1.1 per cent, quarter-on-quarter, dipping to 0.9 per cent in the second quarter of the year.

For the euro zone, quarter-on-quarter growth was expected to be 0.6 per cent for the first two quarters.

''Monetary accommodation has now essentially been removed in the United States. However, with limited if any economic slack left and some pressures on costs, there may be a case for limited further tightening, subject to the incoming data, including the evolution of house prices,'' Cotis said.

''Japan may be at long last exiting deflation, but only very gradually so, despite vigorous growth, which argues for keeping the policy interest rate at zero over the near term.

''Further out, removal of monetary accommodation should be based on unambiguous signs that slack is shrinking and that underlying inflation pressures are mounting.'' REUTERS SD DS1557