Asian manufacturing activity powered ahead in September, providing more evidence of global economic recovery, while financial market developments in Europe kept focus on the tide-turning moment when central banks will end ultra-low interest rates.
Japanese manufacturing expanded at its fastest pace in three years, while factories in China cranked up production for the sixth month in a row, according to two surveys.
In China, HSBC's China Purchasing Managers' Index (PMI) for the manufacturing sector came in at 55.0, much like August's 16-month high of 55.1. Anything above 50 denotes expansion.
The survey suggested that a fiscal stimulus programme worth 4 trillion yuan ($585 billion) continued to support the domestic economy, while global demand for Asian goods slowly recovered. Chinese manufacturers hired workers at the fastest pace in 25 months.
In Japan, the Nomura/JMMA Manufacturing Purchasing Managers Index rose to 54.5 in September from 53.6 in August, marking its third consecutive month above the 50 mark.
Separate data showed however that the pace of a six-month expansion in Japanese industrial production slowed further in August, raising questions about the sustainability of a recovery largely dependent on government stimulus, as elsewhere.
Japan's economy returned to growth in the second quarter, making it the third G7 country after France and Germany to emerge from recession, as exports rebounded and government subsidies at home lifted private consumption.
ECB SUPPORT
In Europe, there was further evidence of the extent to which the economy is benefitting from the massive support of central banks and governments too.
The German Labour Office announced a surprise unemployment fall for September as government-subsidised schemes kept people in jobs on shorter hours, perhaps explaining why consumer morale hit its highest in 16 months.
A lending operation by the European Central Bank suggested commercial banks may also be regaining confidence.
The ECB, which has been pumping masses of emergency funding into money markets since August 2007 to prevent paralysis, lent just over 75 billion to banks in a one-year refinancing tender — way less than the 135 billion a Reuters poll forecast for bank demand.
That suggested that banks may now feel more secure in their liquidity needs and no longer as dependant on the ECB. For markets it could mean tighter liquidity conditions.
"That window is gradually closing," Kenneth Broux, financial markets economist at Lloyds bank in London, said.
"The economy has turned a corner and the bottom line is that central banks are making the first tentative steps towards unwinding the emergency liquidity programs, and maybe the ECB will do so in the next few months as well."
The euro hit session highs against the dollar after the ECB tender result, according to Reuters data. Implied euro zone interest rates rose on news that demand for ECB funds was far less than anticipated, leaving the system with less liquidity than expected.
With share prices rising worldwide since the first scent of recovery last March, the International Monetary Fund trimmed its forecast for global financial sector losses to $3.4 trillion, from a $4-trillion just six months ago.
The report, which warned that loan losses could nonetheless rise in the face of stubbornly high unemployment and associated delinquencies, said U.S. institutions were about 60 percent through their needed write-downs, while their euro area and British counterparts had recognized only 40 percent of losses.
U.S. OUTLOOK STILL UNCLEAR
The U.S. economy contracted 0.7 percent at an annual rate in the second quarter, slower than previously thought as improved consumer and business spending cushioned the impact of a record decline in inventories, according to a government report on Wednesday.
But private employers in the world's biggest economy cut a greater-than-expected 254,000 jobs in September, although much less than in August when 277,000 private sector jobs were slashed.
The worst job prospects in 26 years and their effect on personal finances were cited as reasons for an unexpected drop in U.S. consumer confidence, according to a report released on Tuesday by the Conference Board, an industry group.
Its index of U.S. consumer sentiment fell to 53.1 in September from a revised 54.5 in August.
The debate is starting to focus harder in the United States too on when and how central banks will wean the economy off life support, even if few see any such move as imminent.
"When it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity to that which we pursued monetary accommodation," Dallas Federal Reserve President Richard Fisher said on Tuesday.
"The need for such a move, however, could be some time off, he said.
Highlighting the fragility of the global recovery, Asian export powerhouse South Korea reported industrial output fell a seasonally adjusted 1.3 percent in August from July, breaking a seven-month gaining streak.
