China, strong earnings fuel recovery hopes

NEW YORK (Reuters) - Strong company earnings and economic growth in China lifted hopes for a global recovery as Treasury Secretary Timothy Geithner expressed confidence global financial markets were on the mend.

JPMorgan Chase & Co (JPM.N) topped Wall Street forecasts to report a 36 percent rise in quarterly profits and expectations for strong results from International Business Corp (IBM.N) helped lift U.S. markets higher after grim U.S. economic data weighed in earlier trading.

Global markets rose after data showed China's pace of economic expansion sped up to hit 7.9 percent in the second quarter, fueled by state spending and bank lending, reinforcing hopes it will lead the world economy out of its deepest recession in 80 years.

A business survey in Japan, the world's second largest economy, suggested demand for goods was rising after months of official efforts to pump stimulus money into boosting growth.

The positive news from Asia, helped support global stocks, with the MSCI World Index gaining 0.9 percent .MIWD00000PUS. European shares gained 0.4 percent to end at a one-month high.

Record investment banking fees helped drive a 36 percent rise in quarterly profit for JPMorgan Chase & Co (JPM.N), topping Wall Street forecasts, though the bank warned that credit quality in consumer mortgages and credit cards is deteriorating faster than expected.

Growing optimism about quarterly earnings pushed U.S. stock indexes higher in late trade .N. Earlier, Wall Street fell after the Philadelphia Federal Reserve Bank said factory activity in the U.S. Mid-Atlantic region posted a worse-than-expected decline in July, contracting for the 10th consecutive month.

The Fed report showed the region's business activity index -- potentially the most closely-watched U.S. regional manufacturing reading -- dropped to minus 7.5 in July from minus 2.2 in June, below analysts' forecasts for a reading of minus 5.0.

Other U.S. data was mixed, with the U.S. Labor Department showing the number of Americans lining up for jobless benefits last week hitting the lowest level since January, although the drop was seen as distorted by upheaval in the auto industry.

IBM reported a 13 percent fall in revenue after the stock market close, but outperformed expectations due to cost cutting and a shift to more profitable businesses.

Investors also fretted over a possible bankruptcy filing at CIT Group Inc (CIT.N), a lender to hundreds of thousands of small- and mid-sized U.S. businesses, after bailout talks with the government failed.

Analysts said in leaving CIT to sink or swim on its own, U.S. officials are gambling that financial markets and the economy are now strong enough to withstand the possibility a big lender collapses.

Data showed U.S. home foreclosures raced to a record high in the first half of 2009, swamping efforts by the White House to remedy the spate of failing loans.

The Obama administration said it was dissatisfied with slow progress in saving troubled mortgages from foreclosure, and officials vowed to improve their efforts and study new ways to keep unemployed Americans in their homes.

ASIA STRONG, GEITHNER OPTIMISTIC

Still, U.S. Treasury Secretary Timothy Geithner said he saw signs of confidence returning to the U.S. financial system, adding it was essential that governments do everything they can to prime an economic recovery.

"We are seeing what I believe are durable, very important signs of not just adjustments and restructuring but greater confidence and stability in the system," Geithner told Bloomberg Television in Paris.

"Credit markets are improving and we are seeing life starting to come back into markets that basically shut down at the end of last year," he added.

Chinese data for June showed the economy making up for a slump in exports through domestic demand, bringing yearly growth targets of 8 percent within reach.

(For a graphic of the data, please double-click on: here )

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.