Euro zone manufacturing activity contracted less than initially thought in June but sharp differences between countries supported evidence from Asia and the United States that broad recovery would be slow.
The Markit Eurozone Manufacturing Purchasing Managers Index for June rose to 42.6 from 40.7 in May, its highest since last September. But that was still far below the 50.0 mark that divides growth from contraction.
Asian data excluding Japan were more encouraging than the news from Europe, with China's manufacturing sector extending a steady if unspectacular recovery in June, and South Korea's exports falling much less than expected from a year earlier.
But in Japan, business morale improved less than expected in June, plagued by doubts about the global economy, while U.S. consumer confidence dropped more sharply than expected, suggesting the 18-month recession had not loosened its grip.
"The overall impression is that Japanese firms are facing a more severe situation than market players think," said Susumu Kato, chief economist at Calyon Capital Markets Japan.
Private-sector members of a top Japanese advisory panel said Japan's economy would expand 0.6 percent in 2010/11 for the first growth in three years as a recovery in overseas markets and government stimulus lift domestic demand.
ROBUST CONSUMPTION
In Germany, engineering orders fell by 48 percent in May in real terms from the previous year, the engineering industry association VDMA said on Wednesday. In the March-May period, orders were down 47 percent from a year ago.
However, German retail sales rose unexpectedly by 0.4 percent month-on-month in May, their third consecutive increase, in a sign that lower inflation rates are encouraging consumers to spend despite the threat of job losses.
"These are good figures," said Juergen Michels, an economist at Citigroup in London. "Consumption is looking quite robust in this recession. A clear fall in inflation is helping as it boosts purchasing power."
British retailer Marks & Spencer reported a smaller-than-expected drop in first-quarter underlying sales and also said consumer spending seemed to be stabilising, though it remained cautious on the outlook.
A contrarian view was expressed by European Central Bank Governing Council member Axel Weber, who said the world economy would not return to growth before mid-2010, putting him at odds with the majority of economists recently polled by Reuters.
"I don't think we'll see a return to positive growth before the middle of next year," the Bundesbank president was quoted as saying in a documentary to be aired on German television later on Wednesday.
CHINA OPTIMISM
World stocks began the third quarter on a determinedly upbeat note, with European and emerging market shares rising around 1 percent and oil climbing on hopes for a recovery in demand.
"More and more evidence is accumulating to suggest that the decline in economic activity is coming to an end," Barclays Wealth said in a note.
Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities, was more cautious. "There's no consensus in the market right now between optimism and pessimism, as it's in the midst of recovery trade after extreme moves."
Many analysts said there were signs global trade could continue to improve in coming months from the low levels it reached earlier this year, although any recovery in the world economy would be slow.
Optimists were encouraged by the Chinese official purchasing managers' index for June, which rose to 53.2 from 53.1 in May, adding to evidence across Asia that the regional economy is finally pulling out of a deep dive.
"It shows that the economy is in an upward trend," said Zhang Liqun, a researcher with the Development Research Centre, a think tank under the State Council, China's cabinet.
Australian retail sales jumped by 1.0 percent in May, twice the market forecast, as government giveaways and historically low borrowing costs fuelled spending at department stores and cafes.
"For the RBA (Reserve Bank of Australia), overall it adds to the view that the economy's not really in any need of extra policy assistance right now," said Michael Blythe, chief economist at Commonwealth Bank.
Oil climbed back above $70 a barrel as an industry inventory report showing a larger-than-expected fall in U.S. crude stocks buoyed hopes of a demand recovery.
"The U.S. consumer confidence report was a negative for the oil price but in late news, reports… that crude stocks fell by 6.8 million barrels helped to lift sentiment," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
