CHICAGO (Reuters) –
The U.S. economy's return to growth during the third quarter shows stability has been regained but recovery is fragile and needs nurturing, Treasury Secretary Timothy Geithner said on Thursday.

The government estimated that gross domestic product grew at an annual rate of 3.5 percent from July through September. Still, Geithner said the government must be ready to reinforce growth if needed to avoid risks of a credit crunch.

In a one-hour question-and-answer session at the Economic Club of Chicago, Geithner said the United States can't borrow-and-spend its way to health and pledged every effort to encourage an investment-led recovery.

"The (GDP) number today was really encouraging....it was broad and strong and it wasn't just cash-for-clunkers and it wasn't just economic stimulus...but it's important to remember that it's very early," said Geithner.

U.S. economy grew in the third quarter for the first time in over a year as stimulus spending helped lift consumer spending and home building, fueling an unexpectedly strong advance.

BACK ON FIRM GROUND

"The economy is stabilized. You can see signs of growth here and around the world," Geithner said.

But he added: "It's going to be very hard going forward still. The important things that we're going to have to do are to recognize that recovery's going to have to be led by the private sector and it's going to have to be driven by private companies, private businesses."

Given the hefty budget deficits the government is running, which would be unsustainable over a long period, Geithner said it will be more important than ever that the private sector step up to keep growth going.

"It's going to have to be investment-led and led by exports to a greater extent than in the past because we're not going to be able to borrow-and-spend our way out of this," he said.

Geithner said there was still "a substantial amount of additional reinforcement" still to come from the $787-billion economic stimulus program that the government introduced earlier this year, only about half of which has been spent.

"That'll provide some ongoing support but we're going to have to continue to reinforce that process," he said.

"In the financial system, although there's been a remarkable improvement in confidence and credit is much more easily available...you face the classic risk of a credit crunch slowing the pace of recovery so we're going to have to reinforce the basic process of healing."

REAL ESTATE WOES MANAGEABLE

He expressed confidence problems in the U.S. commercial real-estate sector would not drag down the wider economy.

"I think that's a problem the economy can manage through," he said, but noted it's "a difficult thing for policy to address."

Geithner turned aside a question whether taxes might have to go up to help deal with deficits, commenting that wasn't the direction the Obama administration was aiming.

"I don't think anybody would argue that it would be good for the country to raise taxes," he said. "The president's priority and our focus is going to be doing what it takes to lay the foundation for a recovery led by private investment," he said.

Geithner said the key to getting deficits down was to get the economy growing again at a healthy and sustained rate.

The Obama administration reported a record U.S. budget deficit for the fiscal year ended September of $1.4 trillion, or nearly 11 percent of GDP, the biggest fiscal shortfall since World War 2.

The White House has forecast deficits of more than $1 trillion through fiscal 2011.

Commenting on the Obama administration's financial regulation overhaul, Geithner said it enjoyed broad support and was on track to achieve major reforms despite resistance from some politicians.

(Reporting by Karen Pierog and Glenn Somerville, editing by Andrew Hay)

SHANGHAI (AFP) –
Trading opened Friday on China's long-awaited Nasdaq-style board, ChiNext, with all 28 listed small and medium-sized firms rocketing in early trade on fevered interest from investors.

Trading in all shares on the board in the southern boomtown of Shenzhen was suspended at least once in the morning session as market circuit-breakers in place to curb rampant speculation were tripped.

Anhui Anke Biotechnology (Group) Ltd. was the biggest gainer, up more than 256 percent from its initial public offering price of 17.00 yuan at 60.53.

Movie production house Huayi Brothers Media Corp. soared 167.32 percent from its IPO price of 28.58 yuan at 76.40. All shares were up at least 45 percent at one point in the session.

"The wild ride was expected just as it happened on the opening day of the Nasdaq," said Wu Dazhong, a Shenzhen-based analyst at Shenyin Wanguo Securities.

"These companies need to find their real values on the new market -- I don't think the upward momentum will be sustained too long into the future."

ChiNext is expected to give small- and medium-sized companies access to financing and encourage private equity firms and venture capitalists to back start-ups.

Regulators hope the new market will help fuel young companies and other firms with high-growth potential in the world's third-largest economy, following the example of Wall Street's Nasdaq.

But there have also been worries that the new board may divert funds from the main boards and drag down stock prices.

The Shanghai bourse was up nearly two percent in afternoon trade Friday.

Qiu Yanying, a Shanghai-based analyst at TX Investment Consulting, said he expected to see a pullback on ChiNext once investors calmed down.

"When the speculative trading ebbs, the market will fall into a correction. It's too early to talk about when the correction will come -- it depends on how long the enthusiasm can last," Qiu said.

The first 28 companies to list on the board, ranging from software to medical equipment makers, raised about 16 billion yuan (2.3 billion dollars) in their IPOs -- more than double initial forecasts.

The China Securities Regulatory Commission is due to meet Monday to consider IPO applications from three more companies.

Commission chairman Shang Fulin said at a launch ceremony last week that the opening of ChiNext was an "important step towards implementing the national strategy on promoting innovation".

But he also cautioned investors to trade on the new board in a "rational" way, recognising that start-up stocks have potential for strong growth but are also characterised by unstable financial results.

"The growth enterprise market faces relatively higher risks of irrational and speculative trading and market manipulation," he said.

The bourse on Friday reiterated trading rules -- if the prices move up or down 80 percent during the first day, trading will be suspended until the final three minutes of the session.

Two other debut-day circuit-breakers were in place, under which trading is suspended for 30 minutes if shares in a company move up or down 20 percent from the opening price, and then another 30 minutes for a 50-percent shift.

ChiNext has said the restrictions will help curb risks, maintain market stability and protect investors.

Neil Katkov, senior vice president for Asia at global financial consultancy Celent in Tokyo, said ChiNext could have a troubled start, but success in the long run.

"In the short run, the venture board is going to be a bumpy ride -- good for traders that thrive on volatility, but scary for buy and hold investors," Katkov said.

"In the long run, the fundamentals of China's growth economy mean the exchange stands a good chance of fulfilling its stated purpose of driving the development of new economy sectors such as infotech and biotechnology."

SHANGHAI (Reuters) –
The ChiNext stock market <0#CHINEXT.SZ>, China's long-awaited Nasdaq-style second board, debuted on Friday with a speculative surge that more than doubled the price of all its 28 stocks -- a good sign for firms lining up to list on China's main stock markets.

The bubbly open to a market that hopes to turn local start-up firms into budding Microsofts or Intels stirred concerns about speculative froth, but analysts said circuit-breakers would curb excesses while a steady supply of new shares would help to keep mainland stock valuations under control.

"We certainly won't build positions at such high prices," said a senior manager at a Chinese mutual fund, who could not be quoted by name as he was not authorized to talk to the media.

The huge interest has created dozens of yuan billionaires overnight among the firms' founding shareholders, while retail investors lucky enough to win an IPO subscription lottery could cash in on the debut day for up to 40,000 yuan ($6,000) -- a small fortune for China's small investors.

"I got 2,000 shares in the primary market and I've sold out," said veteran retail investor Lao Yao. "I won't buy on the secondary market. Only die-hards would trade at such high prices."

ChiNext, part of the Shenzhen Stock Exchange in booming southern China, started out with a market capitalization more than 100 times that of China's main Shanghai Stock Exchange, which launched in 1990, and vastly deepens China's capital markets by expanding funding channels for small innovative firms.

BILLIONAIRES

Market players had expected at least a third of the stocks to more than double on the first day. It is typical for IPOs listing in Shenzhen to double or triple on their debut because of their low capitalization.

ChiNext halted trade in all 28 new stocks at least once for 30 minutes during the morning after they rose 20 percent from their opening price, triggering exchange circuit-breakers intended to curb excessive speculation.

About half the stocks were hit with a second 30-minute halt by extending their gains to 50 percent. Trading in Chengdu Geeya Technology Co (300028.SZ) was later halted until three minutes before the close after its stock shot up 80 percent.

Film maker Huayi Brothers Media Corp (300027.SZ) was the most actively traded stock, with investors drawn by the famous celebrities associated with the company.

The value of Huayi Chairman Wang Zhongjun's shares in the company ballooned to 3.9 billion yuan, while Pu Zhongjie, president of medical equipment maker Lepu Medical Technology (300003.SZ), saw his holdings' worth surge to 5 billion yuan.

"Almost all companies have now seen their share prices surging to excessive valuations, betraying rampant speculation," said Zheng Weigang, head of investment at Shanghai Securities.

"Such intense investor enthusiasm bodes very well for upcoming IPOs on the market, but we expect speculation to die down after a couple of months or so, mainly because regulators are pushing large numbers of new shares into the market."

INVESTOR ENTHUSIASM

The 28 listees, almost all private companies in contrast with the state-owned corporations that dominate China's main board, completed recent IPOs at prices averaging 56 times 2008 earnings.

Based on forecast 2009 earnings, analysts estimated the average price/earnings (PE) ratio for the IPO prices at around 40 times, while the huge gains in Friday's trade pushed that up to around 80 times, according to Reuters calculations.

Investors have not been deterred by the high prices, however.

The companies raised a combined 15.5 billion yuan from their IPOs, with an average oversubscription ratio exceeding 120 times.

The high valuations on ChiNext appeared also to boost China's main board, where the benchmark Shanghai Composite Index (.SSEC) rose more than 2 percent in morning trade. (.SS) The average forecast PE for main-board shares is about 30 times.

ChiNext's initial 28 start-ups had a market capitalization of 70 billion yuan before trading started, more than doubling to 150 billion yuan by midsession.

In contrast, the Shanghai bourse listed only eight firms on its debut in December 1990, with a combined market capitalization of less than 700 million yuan.

The Shanghai exchange, now boasting a capitalization of 17 trillion yuan and the world's fifth largest, traded only 126,000 shares worth 494,000 yuan on its first day.

(Editing by Ian Geoghegan)