Mixed signs on recovery as U.S. consumer mood sours

By Eric Walsh

WASHINGTON (Reuters) - The global economic outlook appeared mixed on Friday, with promising data from parts of Europe and Asia offset by a drop in U.S. consumer sentiment, deflation in Japan and a warning from U.S. President Barack Obama that full recovery was still a way off.

Evidence began emerging earlier this year that the world's worst recession since World War Two might be bottoming out, and heartening data from France, Italy, South Korea and India suggest an upturn may not be far away.

Adding to the rosier prospects, the Organization for Economic Co-operation and Development reported that the outlook for its mostly wealthy member nations had improved in May, and said there were signs that the downturn in Canada, Britain, the United States, China and India had bottomed.

"OECD composite leading indicators for May 2009 point to tangible signs of improvement in the outlook of most OECD economies," it said in a report.

But the view from the world's largest economy has been tempered by a continued rise in unemployment, raising concern about consumers' ability to spend and spur demand.

"Full recovery is still a way off. It would be premature to begin winding down our stimulus plans," Obama said on the final day of a G8 meeting in Italy.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of U.S. confidence for July fell to 64.6 from the final reading for June of 70.8, mainly due to mounting concerns about an extended economic downturn, job security and wealth erosion.

July's preliminary reading, the most pessimistic since March, was well below economists' median forecast for 70.5.

"It underlines the ongoing gloom facing the U.S. consumer and further delays prospects for a near-term recovery. That will weigh heavily on risk sentiment," said Brian Dolan, senior currency strategist with Forex.com in Bedminster, New Jersey.

In Washington, U.S. Treasury Secretary Timothy Geithner proposed clamping down on dealers in freewheeling markets for little-understood derivatives that helped create a crisis in U.S. and world financial markets. For two congressional panels, Geithner laid out proposals that would put big dealers like JPMorgan Chase (JPM.N) and Goldman Sachs (GS.N) under much stronger supervision than was the case in the past.

In Detroit, a new General Motors GMGMQ.PK emerged from bankruptcy protection much faster than most industry-watchers had expected -- as a leaner automaker pledging to win back U.S. consumers and pay back taxpayers.

The development, which follows a similar fast-track reorganization of Chrysler, represented a victory for the Obama administration and its commitment to save jobs and prevent a liquidation of the largest U.S. automaker.

STOCKS, OIL DOWN -- TREASURIES, DOLLAR UP

Stock markets worldwide were weaker amid uncertainty about company earnings and recovery prospects, while the dollar and yen rose against most currencies and oil prices fell, with U.S. crude futures ending below $60 a barrel.

A downbeat earnings outlook from oil major Chevron Corp (CVX.N) after Thursday's market close fueled the bearish trend.