Job loss, mixed bank news show long road to recovery

PHILADELPHIA (Reuters) - Higher-than-expected U.S. unemployment claims and mixed news on banks on Thursday suggested the global recession is far from over despite a survey that found euro zone businesses cautiously optimistic about next year.

But on the eve of a G7 finance ministers meeting in Washington, Wall Street stocks ended higher on surprisingly strong earnings from companies including oil major ConocoPhillips (COP.N) and regional bank Fifth Third Bancorp (FITB.O). European stock indexes vacillated, held back by anxiety about the overall health of the banking sector and poor results from Swiss engineering group ABB.

After the closing bell, shares of tech heavyweights Amazon.com (AMZN.O) and Microsoft (MSFT.O) gained on stronger-than-expected earnings, largely helped by cost-cuts.

Still, investors were bracing for the results of "stress tests" ordered by U.S. regulators to determine if banks were adequately capitalized to withstand a deeper recession.

U.S. banks including Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) may need to raise $1 trillion of capital, Keefe, Bruyette and Woods analysts said in a report.

Former Federal Reserve Chairman Paul Volcker, an economic adviser to the Obama administration, urged banks to focus more closely on core lines of business and suggested possibly barring banking organizations from sponsoring hedge funds.

President Barack Obama met with executives from top credit card companies and urged them to stop unfair rate increases and be more transparent and accountable.

Obama said he wanted legislation being considered by Congress to protect consumers against unfair rate increases and ban "abusive fees and penalties.

The New York Times, meanwhile, reported that the U.S. Treasury was preparing a Chapter 11 bankruptcy filing for Chrysler LLC that could come as soon as next week. A source told Reuters that Chrysler's lenders were preparing to make another counteroffer to the Treasury Department by Friday on reducing the U.S. automaker's debt.

Chrysler has until the end of the month to reach agreements for an alliance with Italy's Fiat SpA (FIA.MI), a reduction in secured debt and resolution of labor issues with its unions.

MIXED SENTIMENT

Overall, sentiment across the globe was mixed as the U.S. reported higher unemployment numbers, while euro zone manufacturing and service sector companies gave significantly less downbeat reports than economists had expected.

Markit's Purchasing Managers' Index showed business in the region contracted at its slowest pace in six months in April and there was overall optimism about conditions 12 months from now.

Pockets of upbeat news included Credit Suisse, Switzerland's second largest bank, smashing first-quarter profit forecasts, and Britain's Barclays Plc saying it intends to resume dividend payments.

World Bank President Robert Zoellick said on Thursday nearly half of the Group of 20 nations are considering or have taken measures to restrict trade in the face of an economic downturn.

Zoellick said that while there is a lot of uncertainty around the global financial crisis, "you definitely want to do everything you can to avoid negative shocks," including a retreat to protectionism, which could worsen the situation.

U.S. UNEMPLOYMENT CLAIMS RISE

In the United States, initial claims for unemployment benefits increased to a seasonally adjusted 640,000 last week, above forecasts, and the total number of people receiving jobless benefits rose to a record high, the Labor Department said.

Another dose of negative news came as sales of existing homes in the United States fell 3 percent in March to a much lower-than-expected annual rate of 4.57 million units, the National Association of Realtors said.

Package-delivery company United Parcel Service Inc (UPS.N) reported a lower-than-expected first-quarter profit on Thursday as businesses and consumers shipped fewer packages because of the global economic downturn. The U.S. economic bellwether also gave a second-quarter outlook below analysts' expectations.

Bank of America (BAC.N) came under scrutiny again.

The Wall Street Journal reported that Chief Executive Kenneth Lewis testified under oath that Fed Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson had pressured him to keep quiet about losses at Merrill Lynch & Co, which the bank was buying.

A government source told Reuters that the Federal Reserve gave no advice to Bank of America or Lewis on any questions of disclosure.

"PAST THE CRISIS STAGE"

Despite the negative data, a top U.S. regulator said on Thursday that banks and the U.S. housing market are past the crisis stage and are now on a path to recovery.

"I think we're past the crisis stage; we're in the clean-up stage now," Sheila Bair, chairman of the Federal Deposit Insurance Corp, said at a financial reform conference.

(Reporting by Reuters bureaus worldwide; Editing by Chizu Nomiyama and Steve Orlofsky)