UPDATE 1-INTERVIEW-Oil price may dampen market progress-IMF

By Lesley Wroughton

WASHINGTON, May 16 (Reuters) - Rising global oil prices
could significantly dampen progress that has been made so far
in calming financial markets, the International Monetary Fund's
chief economist said on Friday.

Simon Johnson told Reuters in an interview that banks that
suffered losses as a result of a U.S.-originated mortgage
lending crisis have had greater-than-expected success in
raising new money but he worried that progress could be undone
by soaring energy costs.

"News from credit markets has been good and that is
reassuring people," Johnson said, "I think though that we are
worried the oil price increase, depending on what happens if
oil prices stay at this level, will have significant dampening
effects," he added.

Johnson said the large increase in oil prices since March,
from about $100 a barrel to $125, not only hurt consumers but
also has effected inflation expectations and makes policy
harder to run.

"The developments since March are mixed," he said.

Johnson said while the U.S. tax rebate that is part of an
economic stimulus package was "almost magical in terms of
timing," it was hard to know how much of the money consumers
would spend on at the pump due to higher gas prices .

Earlier on Friday, U.S. Treasury Secretary Henry Paulson
said there has been significant progress in calming financial
markets since the acute turmoil of March, but he too urged
banks to keep raising new capital so they can continue
lending.

Johnson said the rise in stock markets reflected success by
banks in raising capital. Still, he said, the U.S. Federal
Reserve's senior loan officers' survey indicates banks may be
tightening or reluctant to lend to many customers.

"I don't know if (markets) have fully absorbed or thought
about the less good news," said Johnson, adding that the IMF's
last forecast in April for the United States and global economy
"remained pretty much unchanged".

He said the IMF still held the view that the value of the
U.S. dollar was on the "stronger side," and the recent rise in
the currency reflected a somewhat more positive view of the
U.S. economy.
(Editing by Leslie Adler)