China growth lifts world recovery hopes

By Simon Rabinovitch and Zhou Xin

BEIJING (Reuters) - China's growth rate shot up in the second quarter on the back of a surge in state spending and bank lending, boosting hopes the biggest emerging economy will lead the way out of the worst global downturn since the 1930s.

A slew of accompanying data for June depicted an economy successfully making up for a slump in exports through domestic demand, prompting several economists to upgrade their forecasts.

"I've just revised my full-year forecast to 8 percent from 7 percent on this data," said Ben Simpfendorfer, China Economist at RBS in Hong Kong. "I was expecting a much lower figure."

In Japan, a Reuters poll showed manufacturers' confidence has improved for four months in a row as exports and industrial output picked up, but the mood among services firms has slipped back to near a record low. Encouraging data from the United States and Europe and upbeat earnings from Goldman Sachs (GS.N) and Intel (INTC.O) in recent days has revived optimism that the recession is abating, driving up Asian stocks for a third day on Thursday.

"In addition to hopes for a recovery in U.S. corporate earnings, investors are welcoming growing signs of a recovery in U.S. economic data," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Japan's Nikkei .N225 rose 0.8 percent, while MSCI's index of shares elsewhere in Asia Pacific .MIAPJ0000PUS was up 1.3 percent after touching its highest level since mid-June.

European shares were forecast to open mixed, as investors await the latest in a flurry of high profile earnings reports from JPMorgan Chase (JPM.N), Nokia (NOK1V.HE) and Google (GOOG.O).

CHINA TARGET

China's annual gross domestic product growth accelerated in the second quarter to 7.9 percent, up from 6.1 percent in the first quarter, making it the best-performing big economy. Economists had forecast 7.5 percent.

There was also growth in investment in fixed assets in urban areas in the first half and in June industrial production. Retail sales, a rough proxy for consumption, rose 15.0 percent in June from a year earlier after May's 15.2 percent increase.

Although statistics office spokesman Li Xiaochao cautioned the recovery was not yet on a solid footing, economists and the government said the overall performance put China on track to achieve its 8 percent growth target for the year -- the minimum the Communist Party deems necessary to hold down unemployment.

"It's very encouraging, the 8 percent growth target is in sight," said Daniel Soh, an economist at Forecast in Singapore. "It's by now clear that the fiscal stimulus package has offset the contraction in export activity.

China has pouring 4 trillion yuan (357 billion pounds) into a pump-priming package and state prompting has pushed bank lending to record levels.

JAPAN MOOD

Japan's rebound in exports and output has fuelled hopes the world's second-biggest economy may be recovering from its worst recession since World War Two, but the Reuters Tankan survey underscored the threat posed by anaemic domestic demand.