June 12 (Bloomberg) -- Confidence in the global economy ebbed in June as central banks prepared an assault on inflation that's likely to push stocks and bonds lower, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 21 from 22.7 in May, with respondents becoming more pessimistic in every region. A level below 50 indicates negative sentiment. Customers in three of Europe's largest economies also said the dollar may end its two-year swoon against the euro because the Federal Reserve will probably lift borrowing costs.

The threat of tighter monetary policy dashed the recovery in confidence that had been building since the index hit a low in March, when the Fed rescued Bear Stearns Cos. from bankruptcy. Spiraling oil and food prices are forcing central banks from Indonesia to North America to switch from fostering growth to quashing inflation. The Reserve Bank of India unexpectedly lifted interest rates late yesterday.

``We're likely to see more losses in the next six months,'' said Roberto Espinosa Rubio, head of derivatives at Spanish brokerage Link Securities SV SA in Madrid, who participated in the survey. ``It's getting more difficult, especially with oil at this level, which will spur inflation, and both Bernanke and Trichet suggesting the next move for rates could be up.''

The Bloomberg Professional Confidence Survey collated the responses of 4,533 clients on economic conditions in their region and the world. Participants in the poll, conducted from June 2 to June 6, were also asked about the outlook for currencies, securities and policy in the next six months.

Fed Reversal

American investors, analysts and traders increasingly expect the Fed to lift rates. An index on short-term interest rate expectations rose to 60.4 from 51.3, indicating more participants expect rates to go up. After lowering the key rate by 325 basis points to 2 percent since September, Chairman Ben S. Bernanke signaled June 9 that borrowing won't get any cheaper.

Policy makers will ``strongly resist'' any surge in inflation expectations, Bernanke said, adding that the risk of a ``substantial downturn'' in the U.S. receded last month. A week earlier, European Central Bank President Jean-Claude Trichet said the bank may raise rates as soon as next month.

``There's a global recognition now that the inflation genie is out of the bottle and it must be capped,'' said Tony Crescenzi, a Treasury market strategist at Miller Tabak & Co. in New York. ``There's a sense the central banks have become very serious about fighting inflation. The galvanizing factor is oil and its abrupt move up.''

Bearish on Bonds

Survey participants became more bearish on Treasuries, German bunds, Brazilian notes, Hong Kong debt and U.K. gilts.

The index of expectations for 10-year Treasury yields rose to 70.76 for June, the highest level since the survey began in November, from 66.23 in May. The measure is a diffusion index, meaning a reading above 50 indicates participants expect bonds to weaken.

``The market is shifting from a flight-to-quality mindset to one of looking at inflation and real rates,'' said Andrew Harding, a survey participant who helps manage $18 billion as chief investment officer for fixed income at Allegiant Asset Management in Cleveland. ``The rates you had in the first quarter were based on fear. We have a change in psychology. Higher prices in oil and other commodities are fueling concern about inflation.''

Expectations for yields climbed above 50 for the first time for users in U.K., to 57.27 from 47.95. Users in Italy forecast higher yields for the first time since January, with the index rising to 56.47 from 48.28 in May.

`Going to Be Tough'

In addition, ``equity markets are going to be tough,'' said Mark On, who oversees $10 billion as the New York-based chief investment officer of international equity at American Century Investments. ``All the central bankers are going to have to tighten.''

Stock investors grew more bearish than a month ago in the U.S., the U.K., France, Germany, Italy and Spain. Users in Japan and Switzerland abandoned forecasts for gains, while optimism in Brazil fell to the lowest since April.

``With oil at these levels and Trichet saying exactly the opposite of what we want to hear, how are equities supposed to have a smooth ride?'' said Luis Benguerel, an equities trader in Barcelona at Interbrokers Espanola SA, which oversees $140 million.

The Bloomberg stock confidence index in the U.K. dropped to 25.87 from 31.37 the previous month, while the index in Spain declined to 25.74 from 29.32. In the U.S., sentiment slipped to 35.36 from 35.76. In Brazil, the index fell to 70.86 from 82.52 in May as the Bovespa slipped from a record.

Brazil Still Favored

Brazil was the only one of nine markets surveyed with a reading above the 50 threshold that indicates investors expect stocks will gain. The Bovespa is up 6.1 percent this year.

The surge in oil prices is boosting the outlook for energy companies such as Petroleo Brasileiro SA, Brazil's state-run oil producer. Petrobras, as the Rio de Janeiro-based company is known, rose 33 percent since mid-March.

Participants in Brazil remained the most optimistic about their economy, even as the gauge dipped to 76.2 from 86.6. Brazil, the world's largest emerging-market debtor for decades, was raised to investment grade on April 30 by Standard & Poor's as growth in Latin America's biggest economy accelerates and the nation reduces debt.

To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net

Last Updated: June 11, 2008 18:19 EDT