The European Central Bank (ECB) and Bank of England took renewed action to boost growth on Thursday, even as German manufacturing data gave a further sign the downturn is bottoming out.
The ECB cut interest rates to a record low of 1.0 percent and said it could spend about 60 billion euros in a corporate bond purchase scheme, while the Bank of England increased its asset purchase programme by 50 billion pounds ($75.8 billion) and left interest rates at a record low of 0.5 percent.
ECB President Jean-Claude Trichet said the latest data and survey information suggested tentative signs economic conditions had stopped deteriorating.
"More recently there have been some positive signs … of stabilisation albeit at low levels," Trichet said. "Overall, economic activity is going to be weak for the remainder of the year before gradually recovering in the course of 2010."
Markets also looked ahead to results of U.S. government-inspired health checks or "stress tests" on 19 leading U.S. banks, due later in the day and set to show more than half in need of billions of dollars in extra capital.
But U.S. Treasury Secretary Timothy Geithner said no U.S. banks screened by regulators faced the risk of insolvency and the pace of the decline was slowing in the United States, even as the economy faces enormous uncertainty.
"There are some places where we're seeing things starting to improve, but the main thing is a sense of stability," Geithner said.
WORST MAY BE OVER
In Germany a surge in foreign demand unexpectedly pushed manufacturing orders 3.3 percent higher in March, their first increase in seven months.
"Today's number offers some relief for a battered industry," said Carsten Brzeski at ING Financial Markets. "The car scrap scheme and some new foreign orders indicate the free fall has come to an end and give hope that the worst might be over."
U.S. weekly jobless claims showed an unexpected 34,000 drop.
The pan-European FTSEurofirst 300 index of top shares hit a four-month high, with banks leading the advance.
Signs of recovery in the bank sector continued as Britain's Barclays Plc said first-quarter profit rose 15 percent on a strong performance in investment banking, boosting its shares to a seven-month high.
European banks as a whole gained more than 3 percent to a six-month peak.
Yet elsewhere there was more pain in the financial sector where the effects of the credit crunch are concentrated. France's Societe Generale made a surprise quarterly loss and Britain's Lloyds Banking Group Plc said bad debts on corporate loans were rising significantly.
In Switzerland Zurich Financial Services AG posted a surprise 75 percent drop in first-quarter net profit after suffering $1 billion of losses and impairments.
The car industry has also been badly hit and General Motors Corp said it burned through $10.2 billion in the first quarter as it failed to cut costs fast enough to offset a sharp decline in sales. Revenue dropped almost half to $22.4 billion.
READY FOR BANKRUPTCY
Chief Financial Officer Ray Young said there was evidence consumers were scared away from GM cars and trucks because of concern the automaker was headed for bankruptcy.
"You could not offset the revenue implosion that we experienced here," Young told reporters. He said GM still hoped to complete a debt restructuring out of court but was ready for bankruptcy if that proved necessary.
The ECB's quarter point rate cut, as expected, was coupled with steps towards quantitative easing, or the purchase of debt with new money created by the central bank.
The ECB said it could buy some 60 billion euros of covered bonds issued by companies in the euro zone and would lend banks unlimited funds for up to 12 months. The European Investment Bank will also be allowed to gain access to ECB funding by taking part in the central bank's money market operations.
The Bank of England left interest rates at a record low 0.5 percent and said it would increase the size of its asset purchase programme to 125 billion.
"Despite the biggest stimulus in UK history, the recession continues to deepen. But don't panic, the policies put in place will work eventually," said Stephen Boyle at Royal Bank of Scotland.
In the United States, Geithner, speaking ahead of the release of bank stress tests at 2100 GMT, said the vast majority of screened banks would be able to raise capital on their own and none faced a threat of collapse.
"None of those 19 banks are at risk for insolvency," he said, according to a transcript of a television interview.
Stocks, commodities, emerging market debt and high-yielding currencies have all rallied in recent weeks on hopes that the global economic slump might be reaching a bottom.
"The market now holds the view that the worst may be over, at least for America. A very strong bull market appears to have begun," said Fumiyuki Nakanishi, manager at SMBC Friend Securities in Japan.
