Data fuel hope on economy, despite clouds

WASHINGTON (Reuters) - Better U.S. durable goods orders and other encouraging data on Thursday reinforced a sense that the global economic slump could be abating, despite concerns about mounting Western government debt and a disappointing U.S. home sales report.

New orders for long-lasting U.S. manufactured goods saw their biggest gain in 16 months in April, and fewer workers filed for new jobless benefits last week, according to U.S. government figures.

Partly offsetting the optimism was the revision of the durable goods number for March sharply lower.

"The economy is hitting a low point and not deteriorating any further," said Kurt Karl, chief U.S. economist at Swiss Re in New York.

Prospects also brightened for General Motors Corp (GM.N), which has been teetering toward the largest U.S. industrial bankruptcy in history. A group of GM's major bondholders gave its support for a revised bond exchange, a major step toward giving the giant automaker the fast-track bankruptcy it prefers, even as talks to sell its German-based Opel business have stalled.

In Western Europe, data suggested the frosty business climate might be close to thawing.

The euro zone business climate index rose in May for the second month running -- albeit from a very low point -- indicating that levels of industrial production are recovering but remain subdued.

The Business Climate Indicator rose to -3.17 points from an upwardly revised -3.26 in April, its first improvement over two straight months since May 2008, the European Commission said in a statement.

German unemployment unexpectedly posted its smallest increase for May since the start of a seven-month downturn, aided by political efforts to stem job losses in a federal election year.

Japanese retail sales rose in April, their first increase since September, as stores held sales to draw in customers. Economists said, however, they thought the effect of government stimulus would be short lived as companies cut jobs and wages.

WORRIES

Stocks and bonds rebounded on Thursday after slumping on fears over the recent sharp rise in government bond yields. Investors have worried that debt being amassed as governments battle to keep economies afloat could push up borrowing costs for businesses and consumers, choking any recovery.

Another dark spot was news that sales of newly built U.S. single-family homes rose slightly less than expected in April, and of a downward revision in the figures for March.

Underscoring the depth of the crisis in the industry that triggered the global economic slump, one out of eight U.S. households with a mortgage was late on loan payments or in the foreclosure process as of March 31, the U.S. Mortgage Bankers Association said, as the country grappled with its highest unemployment rate in more than a quarter century.

"The housing market depends on the unemployment situation, and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers," said Jay Brinkmann, the association's chief economist.

OIL UP

At its meeting in Vienna, the Organization of Petroleum Exporting Countries decided to keep production targets unchanged, citing weak industrial production, shrinking world trade and high unemployment.

"The severe and broad impact of the ongoing global economic slowdown, precipitated by the financial crisis, has led to a weakness in global oil demand, which is likely to remain for some time," OPEC said in a statement.

Crude oil surged past $65 per barrel to a fresh six-month high on the OPEC meeting results and on government inventory data showing supplies fell sharply last week.

The higher oil price buoyed energy company stocks, which helped send U.S. stocks up .N. In New York, all three major indexes closed more than 1 percent higher, after shares had drooped slightly in London .L, hit by slipping banks, and Tokyo's Nikkei average .T had edged up 0.1 percent.

U.S. government bonds had come under heavy selling pressure as investors focused on the ever-expanding amount of money needed to fund a record $1.75 trillion budget deficit.

Treasuries rallied on Thursday, pulling yields back from six-month highs.

"The move became exaggerated yesterday due to mortgage-related selling, on top of worries about supply and its inflation implication," said James De Masi, chief fixed income strategist at Stifel Nicolaus & Co Inc in Baltimore.

(Reporting by Reuters bureaux worldwide; Writing by Patricia Zengerle; Editing by Dave Zimmerman, Gerald E. McCormick and Steve Orlofsky)