WASHINGTON - U.S. economic prospects are brightening, although Europe's debt troubles serve as a reminder that the United States must tame its own roaring deficit, economists said in a report on Monday.

The National Association for Business Economics (NABE) said its forecast panel nudged up the 2010 growth forecast to 3.2 percent from February's estimate of 3.1 percent. Economists also expected 3.2 percent growth in 2011, which would mark two years of above-trend growth.

The economy is in reasonably good shape as the recovery approaches its first anniversary, but forecasters remain extremely concerned about large federal deficits going forward, said Lynn Reaser, NABE's president.

The survey was taken from April 27 through May 7, so it did not reflect last week's heightened concerns that Greece's debt woes could spill across Europe and drag down the global recovery.

Just more than one-half of those surveyed thought Greece would avoid default, though some debt restructuring will be required. About 12 percent expected outright default in the next 12 months, and 37 percent thought a default would come later.

The responses were gathered before the May 9 announcement of a nearly $1 trillion European rescue fund.

As for China, forecasters assigned a 30 percent probability that it was experiencing an asset price bubble, although views were widely dispersed. The top quartile saw a 60 percent probability of a bubble, and the bottom quartile just 20 percent.

The economists marked up their forecasts for U.S. consumer spending and cut their estimates for household savings. They now expect the 2010 saving rate to average just 3.4 percent, down from February's forecast for 4.6 percent.

Job gains are expected to remain robust, aside from a slowdown in the third quarter, when U.S. Census Bureau hiring ends. NABE's panel expects the unemployment rate to fall to 9.4 percent by the end of 2010 and 8.5 percent by the end of 2011. The rate currently stands at 9.9 percent.

Housing was somewhat of a disappointment. NABE said most forecasters were surprised by setbacks in the housing recovery, but two-thirds of those surveyed thought home sales and prices had already hit bottom.

Small businesses should see some easing of tight credit conditions, while overall business investment will likely be an engine of growth, NABE said. (Reporting by Emily Kaiser; editing by Jeffrey Benkoe)

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