BERLIN/LONDON Soaring German business morale and news of a massive surge in the British economy on Friday gave the clearest signs yet that Europe is accelerating, even as fears mount of a slowdown in the United States.
A call for an immediate start to tax hikes and spending cuts from European Central Bank President Jean-Claude Trichet, a day after his U.S. counterpart talked of ways the Federal Reserve could counter a slowing American economy, underscored the divergence in tone.
Business morale in Europe's No.1 economy Germany posted a record jump in July to reach its highest level in three years, according to the closely-watched Ifo survey, which showed consumer spending was energized by the soccer World Cup.
"These numbers are just insane," said Ralph Solveen of Commerzbank. "The companies are not letting themselves be distracted by all the negative discussions going on such as the bank stress tests, the debt crisis or the threat of a double-dip recession in the United States."
Fears of a U.S. double-dip were exacerbated by indicators on Thursday showing that sales of previously-owned U.S. homes hit a three-month low in June and new claims for jobless benefits surged last week.
There are also signs that the pick-up in European activity might not be sustainable. While euro zone purchasing managers indexes on Thursday also showed a surprise bounce overall, foreign demand for German manufacturing goods eased down a gear in July.
In Britain, official figures showed the economy grew 1.1 percent in the second quarter -- the biggest rise in four years and almost twice the rate forecast in a Reuters poll of 55 economists.
A sharp pick-up in services, which recent purchasing managers' indexes had hinted at, and the biggest rise in construction in almost 50 years, were the key drivers behind the result. Economists welcomed it with caution.
"It is good news to the extent that the recovery seems to be gaining traction, the bad news is that it is going to take a long time before we get back to the peak levels we saw at the start of 2008," said George Buckley, chief UK economist at Deutsche Bank.
Both sterling and the euro rallied after the results but the positive mood circulating European financial markets could change by 1600 GMT on Friday, when the results of a stress test of 91 banks in the European Union are released.
Spanish newspaper El Pais reported that several of the country's 18 savings banks had failed the tests, and analysts are fear similar surprises lurk in the financial sectors of other peripheral euro zone countries.
TRICHET SAYS TIGHTEN FISCAL BELTS
To consolidate the recovery, ECB president Jean-Claude Trichet on Friday urged industrialized countries to hike taxes and cut spending immediately, although he recognized that not all policymakers agreed on the timing.
"There is little doubt that the need to implement a credible medium-term fiscal consolidation strategy is valid for all countries now," he wrote in a guest column in the Financial Times.
But Trichet's claim of "little doubt" of the need for tightening looked squarely at odds with the comments of U.S. Federal Reserve Chairman Ben Bernanke on Thursday, who largely spoke of more ways of easing policy rather than a withdrawal of stimulus.
His comments accompanied data that showed U.S. filings for jobless claims spiked to 464,000 last week. While Bernanke said he did not expect the U.S. economy to stall, he said the Fed could take further action to fight any worsening in the economy.
"We are ready and will act if the economy does not continue to improve, if we don't see the kind of improvements in the labor market that we are hoping for and expecting," Bernanke told the House of Representatives Financial Services Committee.
Economists polled by Reuters earlier this month still expect the U.S. economy to grow 3.2 percent this year and 2.9 percent next year -- faster than the growth expected in Britain and the euro zone.
U.S. policymakers have long warned that European countries must do more to stimulate domestic demand, or risk a return to recession if exports markets tail off as they withdraw growth-boosting spending .
"Indeed, if Germany is simply taking a greater share of world exports than in the past, the peripheral economies might be losing out," said Jennifer McKeown of Capital Economics.
(Reporting by Christina Fincher in London; Additional reporting by Karolina Tagaris in London, Pedro Nicolaci da Costa and Lucia Mutikani in Washington; Writing by Andy Bruce; Editing by Toby Chopra)