Euro zone businesses stepped up job cuts this month even though they are cautiously optimistic about next year, a survey showed on Thursday, and mixed news on major banks suggested recession is far from over.
Credit Suisse beat forecasts with its quarterly profit, offering markets some relief after news of heavy losses suffered by top U.S. and Japanese financial firms fanned fresh worries about the sector's health.
Euro zone manufacturing and service sector companies gave significantly less downbeat reports than economists had expected. Markit's Purchasing Managers' Index showed business in the region contracted at its slowest pace in six months in April and there was overall optimism about conditions in 12 months' time.
But ECB policymaker Axel Weber reminded markets on Wednesday that a decelerating downturn was not the same as recovery, and the euro zone managers also reported they cut jobs at the fastest pace on record in the 10-year-old PMI survey.
"While we take encouragement from the recent signs of improvement, we would caution against getting too carried away," said Martin van Vliet at ING Financial Markets in Amsterdam. "In other words, this probably is more the end of the beginning rather than the beginning of the end of the recession."
As markets look more closely at how individual companies perform, rather than buying and selling stock indexes, Credit Suisse shares rallied after Switzerland's second-largest bank posted first quarter net profits that were double expectations, and said it was optimistic about its prospects.
But European stock indexes fell early on Thursday, weighed by falls on Wall Street and poor results from Swiss engineering group ABB.
STRESS TEST
Earlier on Thursday Japan's Nikkei newspaper reported top brokerage Nomura Holdings would report a record $7.2 billion annual loss, largely due to the costs of snapping up operations from failed Wall Street stalwart Lehman Brothers.
Later the country's second largest bank, Mizuho Financial Group, estimated it was likely to post an annual loss of nearly $6 billion, which would be its first in six years.
The news followed Morgan Stanley's second straight quarterly loss and a sharp cut in International Monetary Fund forecasts for the world economy, adding to market nervousness ahead of the results of U.S. bank stress tests due on May 4.
U.S. banks will be briefed by regulators as early as Friday on how they performed in government "stress tests," before the results are made public later, The Wall Street Journal reported, citing government officials.
Asian markets initially followed Wall Street lower, but later clawed back their losses. South Korea's top carmaker Hyundai Motor Co jumped over 3 percent after reporting a smaller-than-expected drop in quarterly profit.
CONTRAST TO RIVALS
A Reuters poll on Thursday of cash-rich Japanese retail investors showed a record jump in its sentiment gauge in April, though 60 percent of those surveyed were still bearish on Japanese stocks.
But with many more jobs to be cut and bad assets to be written off, the International Monetary Fund cut its world outlook yet again, predicting the economy will shrink 1.3 percent this year, by far the deepest post-war contraction.
Several major economies are expected to fare far worse.
Britain, Germany, Italy, Spain and the euro area as a whole are all expected to shrink sharply this year and keep on contracting in 2010. The IMF expects the U.S. economy to merely stagnate next year after shrinking 2.8 percent this year.
The German Finance Ministry said on Thursday Europe's biggest economy was heading further down after its economic slump probably deepened in the first quarter of the year.
China remains one of the few bright spots with Beijing and private economists increasingly confident that it will come close to its 8 percent growth target this year with the help of its $585 billion stimulus and a surge in lending early this year.
"The consensus is that the economy bottomed out in the first quarter," central bank adviser Fan Gang told Reuters in an interview. "Growth of 7 to 8 percent this year is possible. The economy has started showing signs of stabilising, but growth still relies on government investment."
