Solid results from companies including heavy machinery firm Caterpillar and phone maker LG Electronics hinted the global economy is on the mend, but Federal Reserve Chairman Ben Bernanke warned rising unemployment could yet undercut the U.S. recovery.
After a brutal slump that began in the second-half of 2008, the world is starting to head down the long road to recovery, spurred by low interest rates and hundreds of billions of dollars in stimulus spending by governments.
Banks have increased lending, company profits are improving and stock markets have rebounded strongly after sinking to their lowest level in years in March.
"Better conditions in financial markets have been accompanied by some improvement in economic prospects," Bernanke told the House of Representatives Financial Services Committee.
But while housing and household spending appear to be stabilising, unemployment is likely to remain uncomfortably high into 2011 and could sap fragile consumer confidence, he warned.
"The (Fed) believes that a highly accommodative stance of monetary policy will be appropriate for an extended period," Bernanke said.
The Fed and other central banks have cut benchmark interest rates to record low levels and introduced unconventional measures to encourage growth.
Bank of Japan Deputy Governor Hirohide Yamaguchi hinted he may favour extending the central bank's steps aimed at easing credit strains beyond a December deadline, saying on Wednesday that it was unclear if corporate funding conditions would keep improving. Data showing Australian annual inflation slowed to its lowest in a decade in the second quarter supported the idea that interest rates there will remain at a record low for the time being.
But analysts said measures of underlying inflation favoured by the Reserve Bank of Australia showed domestic price pressures were proving more stubborn than many had hoped, reinforcing speculation there would be no further cuts.
"The RBA would be disappointed that the underlying measures of inflation aren't coming down faster," said Paul Brennan, head of market economics at Citi. "Given that the economy looks like it's recovering a lot better than we all thought it would, it suggests you wouldn't want to see rates cut any further."
EARNINGS SURPRISES
Lower borrowing costs and an uptick in demand have helped companies post improved results in the latest reporting season, with many beating analysts' forecasts.
Caterpillar posted stronger-than-expected second-quarter earnings and raised its full-year outlook, citing signs of global economic stability, though cautioning that the third quarter would be tough.
South Korea's LG Electronics reported a record quarterly profit that easily beat forecasts thanks to solid demand for its phones, flat screen TVs and appliances.
And Apple Inc's quarterly profit blew past Wall Street estimates thanks to strong sales of Macs and iPhones and higher-than-expected gross margins.
The solid earnings boosted U.S. stocks, with the main indexes up between 0.3 and 0.8 percent.
Asian shares also rose, with MSCI's index of Asia-Pacific stocks outside of Japan rising 0.5 percent, up for a seventh straight session and hitting a 10-month peak.
"Shares are continuing their upward momentum on the back of the latest set of solid earnings, and as foreign investors keep buying," said Kim Young-june, a market analyst at SK Securities in Seoul. "But given the markets' latest gains shares are losing a bit of steam."
Japan's Nikkei average added 0.7 percent, with Bernanke's cautious view on the economy capping share market gains and boosting the yen.
More heavyweight results from companies including Fiat and Morgan Stanley will be in focus later, along with minutes from the Bank of England's July meeting.
