U.S. and European officials outlined plans for strict new financial rules on Thursday to stabilize the economy and curb the risk-taking that nearly wrecked the banking sector and set off a worldwide recession.
President Barack Obama's Treasury secretary, Tim Geithner, outlined proposals in Congress that would create a powerful systemic risk regulator with authority to look deep into non-bank financial firms, such as hedge funds and private equity firms, officials said.
That news came as the United States revised fourth-quarter GDP data showing the U.S. economy shrank at its fastest pace since 1982 in the fourth quarter and corporate profits plunged a record $120.1 billion.
"People realize the economy seemingly fell off the cliff in the fourth quarter and continued in the first quarter this year. The question now is will you see a moderation in bad news?" said Doug Bender, managing director at McQueen, Ball & Associates.
The headline figure of a 6.3 percent contraction in the October-December period was better than the consensus forecast of negative 6.5 percent in a Reuters survey of economists, which helped U.S. stocks climb at the open.
The Dow <.DJI> and S&P 500 <.SPX> were up modestly in early trade while European shares <.FTEU3> were down 0.8 percent after Japanese stocks <.N225> closed up 1.8 percent.
The Dow was up 18 percent over the previous 12 sessions in large part due to improved economic data, but Atlanta Federal Reserve President Dennis Lockhart warned that one month of improved data does not constitute an economic recovery and recession in the United States will last for at least a few more months.
Data on European economies on Thursday was less encouraging, with UK retail sales down almost five times more than forecast, Ireland's economy shrinking 7.5 percent at the end of last year, and surveys showing consumer morale in Germany, Italy and France mired in gloom.
HEDGE FUNDS IN VIEW
Authorities are attempting to restore trust by proposing greater regulation for hedge funds, the high-risk institutions at the heart of the financial crisis.
Man Group <EMG.L>, the world's largest listed hedge fund firm, reported an 11 percent fall in assets as private investors and institutional clients pulled out a net $3.2 billion in the face of falling markets.
European Central Bank Governing Council member Nout Wellink called for hedge funds to be directly supervised, saying the sector has been a "blind spot," supervised only indirectly.
"This form of indirect supervision has to be replaced by a more direct one, which should include at least extensive information disclosure," said Wellink, who heads the Basel Committee on banking supervision, a top international regulatory body.
Geithner is calling for comprehensive regulatory reform that would require advisers to hedge funds to register with the Securities and Exchange Commission.
In China, central bank governor Zhou Xiaochuan said the momentum of the slowdown in the world's third-largest economy had been arrested and that leading indicators were pointing to the first signs of improvement.
"Overall, the macroeconomic measures have produced preliminary results and some leading indicators are pointing to recovery of economic growth, indicating that rapid decline in growth has been curbed," Zhou said in a paper posted on the website of the People's Bank of China, www.pbc.gov.cn.
There was also encouragement in Asia from Hutchison Whampoa <0013.HK>, billionaire Li Ka-shing's ports-to-telecoms flagship, whose shares soared after it said second-half earnings nearly quadrupled to around $900 million.
In Geneva, airline industry body IATA said international air cargo traffic, considered a barometer for the health of the global economy, fell 22.1 percent in February but might have found its floor.
The world's No. 1 carmaker, Toyota, predicted no improvement in U.S. industrywide car sales in March after they plunged to a 27-year low in the first two months of the year.
"Annualized sales in January and February were a little above 9 million, and we're hearing that March will be about the same if not worse than February," President Katsuaki Watanabe told reporters.
