RPT-TOPWRAP 6-US, European optimism up, Asia wary of stimulus

(Repeats to widen distribution)
* NY Fed index shows factories almost out of slump
* Bank of Japan extends business funds only for 3 months
* People's Bank of China makes small move to tighten policy
* Stocks rise for third day on strong U.S. results
* UK jobless at highest since January 1997
(For more on the global financial crisis see [nCRISIS])

By Matthew Robinson and Hideyuki Sano

NEW YORK/TOKYO, July 15 (Reuters) - U.S. and European data
released on Wednesday offered fresh hope the global recession
had eased as Asia's top two central banks flagged the need to
rein in emergency stimulus.

U.S. industrial output declined at a slower pace in June
and New York state's factory survey posted its strongest
reading since April 2008, positive signs for markets tugged by
mixed data from both sides of the Atlantic this week.

European car sales showed the first monthly increase in
over a year, thanks to incentives for junking old cars in some
major economies, though analysts cautioned that was also due
to disastrous numbers a year earlier. [ID:nLF30741]

A steep drop in fuel costs drove down euro-zone consumer
prices for the first time year-on-year in June, which should
let interest rates remain low and give consumers some more
buying power. [ID:nLF124919]

U.S. stocks rallied, bolstered by strong quarterly results
from Intel Corp (INTC.O) and Goldman Sachs (GS.N) on Tuesday,
which spurred optimism of a rebound in corporate profits. For
more details, see [.N]

Global stocks, represented by the MSCI World Index
.MIWD00000PUS, rose 2.5 percent.

"The market is prepared to shake off weak economic data,
preferring to focus on consensus-breaking results and upbeat
outlooks from corporates," said Henk Potts, equity strategist
at Barclays Stockbrokers.

U.S. credit card giants Capital One Financial Corp (COF.N)
and Discover Financial Services (DFS.N) reported
lower-than-expected defaults and delinquencies in June,
potentially signaling American consumers' credit positions are
not deteriorating as rapidly as feared. [IDnN15343757]

U.S. government bonds' prices fell and their yields rose
after the New York Federal Reserve Bank's Empire State general
business conditions index improved to a reading of minus 0.55
in July from minus 9.41 in June -- which investors took as a
sign the decline in the state's factory sector was easing.

"It's still a tentative sign, but consistent with other
reports showing that the recession may be near an end," said
Gary Thayer, senior economist at Wells Fargo Advisors.

The dollar dropped to a one-month low against the euro as
the investors rushed into higher-yielding currencies and
assets.

Despite bright signs elsewhere, data showed unemployment
in Britain hit its highest point since January 1997 in the
three months to May. [ID:nLF150992]

ASIA NERVOUS ABOUT OVER-HEATING

Amid tentative signs of recovery in the West, top Asian
nations worried about their economies over-heating with
government stimulus packages.

The Bank of Japan extended crisis funding support for
businesses for another three months, but Governor Masaaki
Shirakawa said improvements in markets had led it to stop
short of a six-month extension into the new year.
[ID:nT132248]

China's central bank also signaled concern over the amount
of money coursing through its economy, taking the latest of a
series of small steps to tighten policy by telling banks they
would have to buy special bills in September. [ID:nSP486673]

"Financial conditions are improving as a trend. But at
present, we decided it was appropriate to maintain the steps,"
Shirakawa told a news conference.

"If conditions improve further, it might be appropriate to
end or review the various steps at the end of the year."

Many hopes for a global revival have centered on China,
where lavish government stimulus spending appears to be having
the desired effect on an economy clobbered by a drop-off in
trade as the developed world slid into recession last year.

A Reuters poll suggested the world's third-largest economy
was on track to reach its 8 percent target for growth this
year, while Asia's worst-hit economies Singapore and Taiwan
would see a sharp turnaround in 2010. [ID:nSGN000111]
(Editing by Jan Paschal)