German recovery hopes lift markets

By Eric Walsh

WASHINGTON (Reuters) - A drop in U.S. weekly unemployment claims and a comment that Germany may have already emerged from recession helped spur a resurgence on Thursday in stock and commodity markets, including oil prices.

The gains came despite news of falling sales at many U.S. retailers in June and mixed May U.S. wholesale data that pointed to prospects for a slow economic recovery.

Amid fresh signs that Germany had turned the corner, a senior German government official told Reuters Europe's biggest economy may have emerged from recession in the second quarter, just as trade data showed exports making a tentative recovery.

"This isn't an upswing yet, it's a normalization after the big economic slump," the official said, speaking on conditions of anonymity. Germany's Federal Statistics Office is due to give a preliminary estimate of second-quarter GDP on August 13.

The number of U.S. workers filing new claims for jobless benefits fell sharply last week, but the data were distorted by an unusual pattern of layoffs in the automotive industry, which amplified the decline.

June sales fell for most U.S. retailers as the plunging job market and cool, rainy weather dampened interest in summer shopping, sparking fresh concern about the back-to-school season.

In a positive development, U.S. wholesale inventories shrank in May for the ninth month in a row, falling to their lowest level since August 2007, government data showed. But, the drop was smaller than analysts had forecast.

Britain's central bank unexpectedly decided against expanding a scheme to pump more money into the economy, despite concerns the global recovery remains fragile.

Analysts said the bank wanted to see August inflation data before deciding its next move.

Trade figures lent some support to hopes that Germany is emerging from the worst global recession since World War Two, showing a higher-than-expected surplus of 10.3 billion euros (8.84 billion pounds) in May.

"We can't talk about a change in trend. But the freefall appears to have stopped. There is a lot to suggest that foreign trade supported the economy again in the second quarter," said Thorsten Polleit of Barclays Capital.

Despite some encouraging data and corporate results, doubts remain over the strength of any recovery, and leaders of the Group of Eight industrial nations meeting in Italy agreed it was too early to cut off economic aid -- despite deep interest rate cuts and an estimated $5 trillion (3.05 trillion pounds) in public spending.

"All were of the view that the crisis is a long way from being over," said German Chancellor Angela Merkel. "With luck, we have reached the bottom," she told reporters in L'Aquila, where leaders of the United States, Japan, Germany, France, Britain, Italy, Canada and Russia held their annual summit.

U.S., EUROPEAN SHARES RISE

The International Monetary Fund raised its 2010 global growth outlook but warned that neither the economy nor the banking industry was strong enough to do without heavy public spending and cheap central bank funds.