"One of the first signs of recovery will be a big reduction in the current account surplus," economist Mark Mcfarland said.

"When we see a reduction in that surplus, that will indicate that domestic demand -- the consumer sector -- has revived." Economists say that although declining surpluses could have a negative short-term impact, particularly on stock markets, the trend was highly positive.

Large current-account surpluses have helped currencies to stabilise and interest rates to fall. But they were driven by low amounts of imports, indicative of the fact that many economies were so weak they were incapable of importing the raw materials needed to supply export capacity.

Reductions in the imbalance of payments shows that the policy followed by many Asian governments -- stimulating domestic demand -- is starting to work. SouthKorea early this month posted a customs-cleared January trade surplus of $695 million, with imports rising 15.4 percent year on year and exports up 3.7 percent.

The figures confirmed import demand has returned. As a result, South Korea expects to halve its current-account surplus this year to about $20 billion from $40 billion in 1998. The figures bode well for the economy, but foreign investors were expected to react to the data by selling down the stock market, mainly because a lower current account surplus implies less cash on hand and, therefore, the prospect of higher interest rates.

"This does mean downward pressure on interest rates will come to an end, and from a stock market point of view that is hugely important," said Geoffrey Barker, chief economist at Dresdner Kleinwort Benson Asia.

Other factors pushing Asian interest rates higher include the recent rise in Japanese and US bond yields.

"While independent central banks in the region are likely to remain accommodating, the swift decline inmoney market interest rates which Asia enjoyed in the second half of 1998 has ended," said Barker.

"This has little to do with the direction of inflation, which will continue falling, but is contingent upon the cyclical upswing in demand."