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WASHINGTON (Reuters) - The International Monetary Fund sharply raised its global economic growth forecast, casting developing countries in a leading role while rich nations struggle with high unemployment and government debt.

In an update of its World Economic Outlook, the IMF said on Tuesday the world economy will expand by 3.9 percent in 2010, much higher than the 3.1 percent it projected in October, and the pace will pick up to 4.3 percent next year.

"I don't think we're that optimistic but we're less pessimistic than we were in the last World Economic Outlook in October," IMF chief economist Olivier Blanchard told Reuters Television in an interview.

"If you look at what our forecasts are for the recovery in the major advanced countries, these are still weak numbers. They're better than they were six months ago, but they're still quite mediocre," he added.

While an economic recovery appears to be gaining traction, the IMF warned the financial system remains fragile in the richer countries and banks will need a lot more capital.

Lending remains lackluster in advanced economies, which will constrain their pace of growth. Because of that the IMF reiterated its view that it was too soon to raise interest rates or remove many of the emergency financial supports put in place by central banks during the recent financial crisis.

As a group, advanced economies are expected to expand 2.1 percent this year and 2.4 percent in 2011, the IMF said.

In emerging and developing markets strong internal demand will provide "relatively vigorous" growth, the IMF said. It warned, however, that the flow of capital into many of these countries was becoming a growing concern because it could lead to asset price bubbles and appreciations in currencies.