Investor sentiment in Germany has risen to the highest level in nearly three years, data showed on Tuesday, reflecting the views of policymakers who have said the global economy may recover by the end of the year.
The rise in the ZEW economic institute's sentiment indicator for May, which forecasts conditions six months ahead, comes after a jump in manufacturing orders and exports, reinforcing signs that worst of the slump is over for Europe's largest economy.
"It's another powerful gain, as we had expected. It's still part of the 'it-can't-get-any worse' effect," Ralph Solveen of Commerzbank said.
However, market reaction to the ZEW indicator was muted as the same poll found that current conditions had deteriorated, a reminder that a sustained economic recovery is some way off.
World Bank President Robert Zoellick said on Tuesday the pace of contraction in global output appeared to be easing, telling Spanish television: "The majority expect recovery at the end of this year, at the beginning of next year."
He said financial markets were "clearly showing signs of recovery in developed markets".
The improved outlook still comes with a health warning that any recovery may be slow and bumpy. European Central Bank Executive Board member Gertrude Tumpel-Gugerell said the end of the crisis should be celebrated yet.
"We can't yet talk of the crisis being at an end," she said in a speech prepared for delivery in Berlin.
BANK STOCKS
World stocks rose for a third day on Tuesday, with bank stocks leading the gains. Banks rallied on Wall Street on Monday after sources familiar with the situation said some U.S. banks may soon repay funds they were given by the government to prevent their possible collapse.
The banks want to repay the money as soon as possible to try to signal their strength to the market and to avoid the tighter regulation that comes with government funds.
Shares in British banks Royal Bank of Scotland and Lloyds Banking Group also rose after a source said Britain had held talks with investors to gauge their interest in buying its stakes in the part-nationalised lenders.
Fund manager Allianz Global Investors said the financial environment was improving thanks to decisive action by central banks, with government efforts to assist banks burdened by toxic assets also gradually taking effect.
"We're a third of the way through the economic crisis and two-thirds through the financial crisis, but we're in the final stage of the capital market crisis," the chief executive of the asset manager, Joachim Faber, told Reuters.
RETAILERS CAUTIOUS
But with the job market still uncertain and unemployment on the rise, consumers are yet to feel the impact of improving market and analyst sentiment.
Britain's biggest clothing retailer Marks & Spencer Group Plc posted a 40 percent slide in full-year profits, but said it was hopeful the downturn in its market had levelled off.
"I'm not into 'green shoots' mode but I am (thinking) maybe this is a plateau at the bottom," Executive Chairman Stuart Rose told reporters.
British luxury goods group Burberry said it was planning for trading to remain tough and around 800 employees had left the group, as it too announced profits were down.
Even though analysts expect U.S. housing starts data later on Tuesday to show a rise in April, adding to evidence of some improvement in the market whose collapse in mid-2007 triggered the global crisis, that is unlikely to feed through to the job queues any time soon.
Economists expect the pace of homebuilding to remain slow until the huge backlog of unsold homes is worked off.
Despite Australian central bank governor Glenn Stevens on Tuesday joining the chorus of officials predicting the economy should start pulling out of its worst recession in more than six decades later this year, analysts were already looking towards gross domestic product data from Japan, due on Wednesday.
"Developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year," Stevens said in a speech.
Analysts said there was still some caution in the market ahead of the Japanese data, expected to show the world's second-largest economy contracted 4.2 percent in the first quarter, likely its worst performance since World War Two.
Investors, however, have largely written off the first quarter data as the recession's low point and increasingly focus on what data and policymakers have to say about the future.
