May 7 (Bloomberg) -- Billionaire investor George Soros said the ``acute phase'' of the financial crisis is ``largely behind us'' even as the U.S. economy is only now starting to feel the effect.

The damage done to the global financial system ``has to affect, in my opinion, the real economy,'' Soros, 77, said in a question-and-answer session in Washington today. ``The effect of that is only beginning to be felt. There is a certain time lag.''

Just as housing prices ``overshot on the upside,'' they will overshoot on the way down, Soros said. The U.S. is in the ``very beginning of an uptrend'' in foreclosures, he said at an event hosted by the Council on Foreign Relations. With home prices declining, ``to expect that by the end of the year you will have passed through that'' is unrealistic, he said.

The world's biggest banks and securities firms have reported credit losses and writedowns of about $319 billion after the collapse of the U.S. subprime mortgage market, according to Bloomberg data.

The U.S. dollar ``would certainly come under renewed pressure'' if the Federal Reserve were to further reduce interest rates, Soros said. The Fed cut its benchmark interest rate by a quarter-percentage point to 2 percent on April 30.

``The fact that they stopped at 2 percent is now giving the dollar a breathing space,'' Soros said. ``So the dollar has stabilized as a result.''

Sovereign Funds

Sovereign wealth funds have been a ``positive factor'' in stabilizing U.S. financial companies, Soros said. Certain standards need to be set for the funds because they could come under political influence, he said.

The funds, owned and controlled by foreign governments, have bought stakes in financial institutions including Citigroup Inc., Merrill Lynch & Co., UBS AG and Morgan Stanley, after the banks suffered losses on securities linked to subprime mortgages. The funds' assets may increase fourfold to $12 trillion by 2015, according to Morgan Stanley estimates.

U.S. stocks are in ``a bear-market rally,'' Soros said. The Dow Jones Industrial Average has risen 10 percent since March 10.

Soros criticized what he called ``market fundamentalism,'' the idea that markets work themselves out. ``Markets don't tend toward equilibrium,'' he said. ``They actually go to excesses.''

Commodities

Soros also reiterated his view that there is a ``bubble element'' to global commodity prices. Commodities are in their seventh year of gains, with crude oil rising to a record above $123 a barrel today.

Last year, Soros returned to a more active role in managing the $17 billion Quantum Endowment Fund, whose profits pay for his philanthropic projects, because of concerns about market declines that started with rising subprime-mortgage defaults.

Soros earned an estimated $2.9 billion last year, ranking second after John Paulson, founder of New York-based Paulson & Co., according to Institutional Investor's Alpha Magazine. Paulson was paid an estimated $3.7 billion, the magazine said.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

Last Updated: May 7, 2008 17:52 EDT