China's industrial output rose less than expected last month, offering another reminder that the global economic recovery may not be as swift and strong as markets had hoped for.
Mounting evidence that the worst global slump in six decades may be abating has in recent weeks encouraged investors to make riskier bets again, driving the safe-haven dollar to four month lows on Wednesday.
Intel Corp. Chief Executive Paul Otellini was the latest official to voice guarded optimism about the future, saying the second quarter has been so far slightly better than expected for the technology bellwether.
However, there were still plenty of warning signs that the road to full recovery would be long and bumpy. The latest came in the form of Wednesday's disappointing Chinese production data and mixed earnings reports from Europe, including a bigger then expected loss posted by Dutch financial group ING.
China's factory output rose 7.3 percent in April from a year earlier, below analysts' 8.3 percent forecast, while retail sales jumped 14.8 percent, exceeding analysts' expectations.
DOMESTIC FOCUS
The numbers, combined with Tuesday's bigger-than-expected slump in exports and robust growth in capital spending, showed an economy revving up with the help of Beijing's massive $585 billion stimulus, but still held back by weak foreign markets.
"Policy stimulus is having an impact on domestic demand, but weak external demand is still dragging down overall growth," said Brian Jackson, an economist with Royal Bank of Canada in Hong Kong. "It is important … to recognise that any recovery in China is not going to proceed in a straight line."
In Japan, service sector sentiment improved for the fourth month running and central bank data showed that firms were less inclined to hoard cash, and funding strains appeared to be easing.
Analysts, however, pointed out that this in part reflected reduced capital spending, which boded ill for recovery prospects for the world's second-biggest economy.
In Europe, euro zone March industrial production data due at 0900 GMT are set to show that its economy was still struggling. Analysts' forecasts are for a monthly output drop of 1 percent after a 2.3 percent decline in February, but sharp production falls reported by France and Italy earlier this week raised the prospect of a deeper setback for the whole 16-nation currency bloc.
However, some earnings reports from leading European companies were not all doom and gloom.
While ING disappointed markets with a 793 million euro ($1.1 billion) first-quarter loss, Italy's Unicredit matched expectations with its profit and Spain's Telefonica Europe's largest integrated telecoms group, beat forecasts with a near-10 percent profit rise.
Markets also expect a U.S. retail sales report at 1230 GMT to add to evidence that the crisis that roiled financial markets, destroyed millions of jobs and pushed the world economy into recession, may be abating.
Sales excluding autos are seen edging up 0.2 percent in April after a 0.9 percent fall in March.
Despite some caution, the underlying sense of optimism about the prospects for the world economy was evident in market action.
Stocks in Tokyo and the MSCI all-country world stock index gained 0.5 percent, oil hovered around $60 per barrel on expectations of rising demand, while safe-haven dollar and U.S. and Japanese government bonds slipped.
The dollar was under additional pressure from concerns over ballooning fiscal deficits that a commentary in the Financial Times said threatened the U.S. government's top credit rating.
Bank bailouts made up much of Washington's rescue bill and banks were keen to show that they would be able to build up a capital cushion prescribed by regulators without further government handouts.
After Bank of America sold $7.3 billion worth of shares in China Construction Bank on Tuesday, according to a source, U.S. Bancorp and Bank of New York Mellon Corp joined the ranks of big U.S. banks conducting stock sales.
European Union sources said the 27-nation bloc would conduct its own bank stress tests by September, although it would look at the whole sector, not individual institutions.
"It is more a highly aggregated stress test, which should show the degree of resilience of the overall EU banking sector," a source familiar with EU finance ministers' deliberations said.
