Switzerland knocked the United States off the position as the world's most competitive economy as the crash of the U.S. banking system left it more exposed to some long-standing weaknesses, a report said on Tuesday.

The World Economic Forum's global competitiveness report 2009/2010 showed economies with a large focus on financial services such as the U.S., Britain or Iceland were the losers of the crisis.

The U.S. as the world's largest economy lost last year's strong lead, slipping to number two for the first time since the introduction of the index in its current form in 2004.

We have been expecting for some time that it may lose its top-position. There are a number of imbalances that have been building up, said Jennifer Blanke, Head of the WEF's Global Competitiveness Network.

There are problems on the financial market that we were not aware of before. These countries (like the U.S. and Britain) are getting penalized now, she said.

Trust in Swiss banks also declined. But in the assessment of banks' soundness, the Alpine country still ranked 44th. U.S. banks fell to 108 -- right behind Tanzania -- and British banks to 126 in the ranking, now topped by Canada's banks.

The WEF bases its assessment on a range of factors, key for any country to prosper. The index includes economic data such as growth but also health data or the number of internet users.

The study also factors in a survey among business leaders, assessing for example the government's efficiency or the flexibility of the labor market.

The WEF applauded Switzerland for its capacity to innovate, sophisticated business culture, effective public services, excellent infrastructure and well-functioning goods markets.

The Swiss economy dipped into recession last year, too and had to bail out its largest bank UBS. But its economy is holding up better than many peers and most banks are relatively unscathed by the crisis, which drove U.S. banks into bankruptcy.

The WEF said the U.S. economy was still extremely productive but a number of escalating weaknesses were taking its toll.

Concerns were growing about the government's ability to maintain distance to the private sector and doubts rose about the quality of firms' auditing and reporting standards, it said.

BRAZIL LEAPS

Leading emerging markets Brazil, India and China improved their competitiveness despite the crisis, the report showed.

But Russia saw one of the steepest declines among the 133 countries assessed, falling back 12 places to 63, as worries about government efficiency and judicial independence rose, the WEF said.

After years of rapid improvement, which took it to place 29, China now had to tackle shortcomings in areas such as financial markets, technological readiness and education as it could no longer rely on cheap labor alone to generate growth.

India, ranked 49th, was in turn well positioned in complex fields such as innovation but had still to catch up on basics such as health or infrastructure, the WEF said.

Brazil leapt by 8 ranks to 56th, as measures to improve fiscal sustainability and to liberalize and open the economy showed effects, the report said.

Among the top-ten, Singapore moved up to third from fifth, swapping positions with Denmark, which fell behind fellow-Nordic country Sweden. Finland as 6th and Germany as 7th stayed put while Japan and Canada overtook the Netherlands.

The WEF study named African countries Zimbabwe and Burundi as the world's least competitive economies.

In the case of Zimbabwe, the WEF noted the complete absence of property rights, corruption, basic government inefficiency as well as macroeconomic instability as fundamental flaws.

For the full report click on: www.weforum.org/gcr

(Reporting by Sven Egenter; Editing by Andy Bruce)

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