U.S. economy seen growing; dollar good for Saudi

JEDDAH (Reuters) - The United States economy should keep growing this year despite a fragile global recovery, a top Treasury official said at an economic conference on Sunday.

Meanwhile, Saudi Arabia's central bank governor said the greenback serves Saudi Arabia well as a peg but may face competition as the world's reserve currency in future.

Growth of the world's biggest economy is expected to cool this year after a burst of activity late last year, while sentiment for the dollar, used as a currency peg in much of the Gulf, improved.

"We expect to see continued growth in 2010," Deputy U.S. Treasury Secretary Neal Wolin told an economic forum in Saudi Arabia, a regional lynchpin of U.S. policy in the Middle East.

"To be sure, we still face considerable challenges. The market turbulence in recent weeks is a reminder that the recovery remains fragile," he said at a panel discussion.

The U.S. economy is expected to grow by 2.9 percent this year after an estimated contraction of 2.4 percent in 2009, a Reuters poll showed.

It expanded by 5.7 percent annually in the fourth quarter, the fastest pace in six years.

While recovery gained momentum in the U.S., the euro zone GDP edged up by a mere 0.1 percent in the fourth quarter from the previous three months and markets stay jittery about prospects of a default by its member Greece.

DOLLAR PEG

The dollar is serving Saudi Arabia's economy well, although its reserve currency status could be challenged as the euro is gaining in importance, the country's central bank head said.

"Given the substantial benefits of being a reserve currency in lowering the cost of borrowing one should expect competition for the dollar in the future, especially because developed economies have substantially higher government debt burdens then a few years ago," said Muhammad al-Jasser, Governor of Saudi Arabian Monetary Agency (SAMA).

Jasser has repeatedly said in the past that the dollar benefits the world's largest oil exporter and would remain as long as the greenback remains the key reserve currency globally.

He said on Sunday this could change when Saudi and other Gulf Arab economies become less dependent on oil.

The kingdom is a major holder of dollar assets and has been pegging its riyal to the dollar since 1986. The dollar climbed to nine-month highs to the euro last week as market concerns persist about debt-laden Greece.

Jasser also shared hopes that the United Arab Emirates, the second largest Arab economy after Saudi Arabia, and Oman were going to rejoin the planned Gulf monetary union.

(Writing by Martin Dokoupil)

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