NEW YORK (Reuters) – The International Monetary Fund said yesterday global write-downs of toxic debt could reach $4.1 trillion as banks and financial institutions come to grips with bad assets and seek more capital to weather the economic crisis.

The IMF projection came on the same day as many companies, including global construction equipment powerhouse Caterpillar Inc, reported dismal first-quarter results. But others, such as British retail giant Tesco and diversified manufacturer United Technologies Corp, surprised with better-than-expected earnings.

US Treasury Secretary Timothy Geithner said most US banks have enough capital to keep lending, though toxic assets are fostering doubt about their health and slowing a recovery.

Also on the good news front were reports that German economic sentiment jumped, global investor sentiment rose and some business executives and central bankers detected signs of stabilization amid the global recession.

"We saw the prospect of a slight improvement in the economy later this year and more significant growth as we moved through 2010," Bank of England Monetary Policy Committee member Andrew Sentance said in a London speech.

"Though there are still a lot of risks, the economic data since February has been broadly consistent with this projection," he said.

The Bank of Canada surprised markets by cutting its benchmark interest rate to a historic low of 0.25 percent and said it was prepared to keep it there for another full year in an aggressive bid to spur a slumping economy.

Sweden's central bank cut its rate to 0.5 percent , while India's cut its key lending rate by 25 basis points, the sixth cut in seven months.

US stocks rose strongly after Geithner's remarks about banks and the Dow Jones industrial average closed 1.6 percent higher.

Also lifting shares: profit from United Technologies beat expectations and better-than-expected results from technology companies offset concerns about corporate profits and cloudy outlooks. The Nasdaq Composite Index rose 2.2 percent. Stocks in Europe reversed early losses and ended higher.

Oil futures tracked stocks, with US crude rising 1.4 percent to $47.20 after earlier hitting a nearly five-week low of $43.83 a barrel.

Many question whether the worst economic downturn in 80 years has found a floor and, in parallel, whether stock markets have embarked on a sustained rally or are merely bucking a broader bear market for a short while.

But two sentiment surveys showed investors expecting better times. The ZEW think tank's April poll of German economic sentiment rose to 13.0 from -3.5 in March, the first time since July 2007 that the index has hit positive territory.

State Street Corp's monthly global investor confidence index shot up to a nine-month high in April, with the US financial services firm finding improved sentiment across the board in North America, Europe and Asia.

"There are some glimmers of hope ... The deterioration of the real economy is slowing down and mixed signals from confidence indicators show that at least confidence is trying to find a bottom," said Carsten Brzeski at ING Financial Markets.

World credit first seized up in mid-2007 as banks suffered huge losses stemming from a collapsing US home loan market. That crunch has led to deep recession in much of the world.