Stocks soar despite mixed signs of crisis recovery

WASHINGTON (Reuters) - Hope grew on Thursday that China's slowest quarter on record may mark a bottom to the global economic crisis as optimism over banking and technology helped stocks defy weak U.S. and European data with a strong rally.

But General Growth Properties (GGP.N), the second-largest U.S. mall owner, underscored the tenacious grip of the downturn and trouble caused by frozen lending by filing for bankruptcy protection in the biggest real estate failure in U.S. history.

General Growth said its core business was solid but that bankruptcy was the only way it could refinance debt.

JPMorgan Chase (JPM.N), the No. 2 U.S. bank, started the trading day by bolstering hopes of stabilization in the financial sector with quarterly results that beat forecasts.

Google (GOOG.O), the top U.S. Internet search company, added to a brighter outlook for the tech sector by announcing stronger-than-expected profits after the closing bell.

Improved investor sentiment about the U.S. banking and tech sectors helped to drive the Dow Jones industrial average .DJI up 1.19 percent, the S&P 500 .SPX by 1.55 percent and the tech-heavy Nasdaq .IXIC by 2.68 percent. <MKTS/GLOB>

"We are getting a much better view in terms of what's happening at the corporate level," said Barclays Stockbrokers strategist Henk Potts. "While it's not positive, it's certainly not as gloomy as many market participants had feared."

MIXED SIGNALS

Prospects were cloudier on the economic front.

China, the world's third-largest economy, started this year with its weakest quarter since records began in 1992 as its 6.1 percent growth rate fell below the prior quarter's 6.8 percent level and a consensus forecast of 6.3 percent.

But analysts saw optimistic signs in quarter-on-quarter growth, which they estimated in the range of 5.3-6.2 percent because the Chinese government does not publish the data.

The International Monetary Fund said the global recession is likely to be unusually long and severe, with recovery sluggish since the crisis took root in reckless bank lending to the U.S. housing market.

The IMF called for aggressive and coordinated monetary and fiscal policies, saying restoring confidence in the financial sector was important for a recovery to take hold.

But Dennis Lockhart, a top U.S. Federal Reserve official, said the recession in the world's largest economy should end by mid-year with growth slowly picking up. He added that there were "encouraging signs that support cautious optimism."

Americans are becoming less pessimistic about the economy's prospects but are still worried about job security, a Gallup survey showed. About 37 percent said economic conditions were getting better -- the best showing since mid-September.

Similar sentiments came from Bank of England Monetary Policy Committee member-designate David Miles, who said the worst of Britain's recession "may well be behind us."

Still, weak European and U.S. data were reminders that the recovery may not be fast, with the number of Americans claiming jobless benefits hitting a record high in early April and new U.S. housing starts falling sharply in March.

"While the situation in housing and in the labor markets is not necessarily deteriorating, it's clear that there is no real sign of recovery whatsoever," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

Industrial output in the euro zone fell by a record 18.4 percent year-on-year in February and inflation halved to an all-time low in March, adding to pressure on the European Central Bank to ease policy.

The grim European numbers came after U.S. data on Wednesday showed industrial production fell a sharp 1.5 percent in March and by an annual rate of 20 percent in the first quarter. U.S. consumer prices also dropped unexpectedly in March.

AIG DEAL AND JPMORGAN BONDS

As much of the financial sector struggles, the results of "stress tests" to gauge how the 19 biggest U.S. banks would fare should the recession worsen will be publicly disclosed on May 4, a regulatory official said.

Markets are anxiously waiting to see which banks are on the path to recovery and which need more government rescue money.

There was some good news for American International Group (AIG.N) as Zurich Financial Services (ZURN.VX) said it will buy the bailed-out insurer's U.S. auto coverage business for $1.9 billion.

For AIG, once the world's largest insurer, the divestiture is its largest since its rescue by the government in September. U.S. taxpayers have taken a roughly 80 percent stake in AIG in exchange for support of up to $180 billion.

JPMorgan, which said better investment banking performance offset higher losses from consumer debt, launched a $3 billion bond sale on Thursday that does not have government backing -- its first such deal in about eight months.

Its rival, Goldman Sachs (GS.N), also posted surprisingly good first-quarter profits on Monday and said it planned to raise $5 billion of common shares to help repay the $10 billion it got in federal rescue money.

Asian shares rose and European stocks hit a two-month high on JPMorgan's results and comments by Nokia (NOK1V.HE), the world's top cellphone maker, that demand was becoming more predictable in the second quarter.

A Reuters poll showed confidence at Japanese companies remained near record lows, but Swiss drugmaker Roche (ROG.VX) and French food group Danone (DANO.PA) both stuck to their 2009 earnings targets.

The dollar .DXY and yen rose against the euro. While oil edged up toward $50 a barrel, gains were limited by the mixed economic data.

(Reporting by Reuters bureaus around the world; Editing by Dan Grebler)