TOPWRAP 4-China, UK accentuate the positive; Sweden shows risks

Published: 10 Jun 2009 17:32:35 PST

* Britain, Italy industrial output rises, French drops

* China May industrial output tops forecasts-reports

* Sweden's central bank to take loan from ECB

* Japan machinery orders weak

TOKYO/PARIS, June 10 - Data from three major economies suggested on Wednesday the worst of the global recession may be over although economists cautioned that difficulties still lay ahead across the globe.

In China, an engine of world growth in recent years, newspapers said factory output rose in May at the fastest pace since last September, while official data showed British industrial output rose in April for the first time in more than a year and Italian output rose after 11 straight monthly falls.

Global economic data has improved in recent weeks from a nadir in March, partly spurred by trillions of dollars of government stimulus. Stock markets have rallied on hopes an end might be in sight to the deepest recession in six decades.

However, policy makers have suggested risks remain and any recovery will be take hold only slowly.

Underlining the risks, Sweden's central bank said on Wednesday it was taking out a hefty loan from the European Cenral Bank to safeguard financial stability, although the country's financial watchdog said Swedish banks could cope with "extreme" pressures.

In Asia, Japanese machinery orders fell unexpectedly in April. French industrial output, too, fell more sharply than forecast, following news of weak German output on Tuesday.

"It seems that we are really hitting rock bottom now and there doesn't seem to be much further to go," said Alexander Law, chief economist at consultancy Xerfi in Paris.

"We're looking towards a technical recovery in the third quarter and we're really in the last drags of this recession."

The surprise rise in UK industrial output in April raised the prospect that Britain could be the first major industrialised nation to beat recession.

The Office for National Statistics said industrial output rose 0.3 percent on the month, the first increase since February 2008. However, doubt remains about how sustainable any British recovery will be because banks remain reluctant to lend.

British interest rates could stay low for some time, Bank of England policymaker Kate Barker said.

"The really important question is (whether) there's a pick up in the economy and if people can sustain that so it continues on to autumn," she told the Leicester Mercury newspaper.

The euro zone's third biggest economy, Italy, reported that its industrial output grew again in April after 11 consecutive monthly declines.

"It's better than expected but it needs to be put into perspective," said Bank of America's Guillaume Menuet. "Italy is one of the countries where output has fallen most."

European stocks rose in early trade on Wednesday, with banks leading on news that top U.S. banks have been cleared to repay state aid and oil majors boosted by a jump in crude oil above $71 a barrel.

Asian shares rose, led by resource companies on a rally in oil and metals prices. Tokyo's Nikkei climbed 2.1 percent to its highest close in eight months, while MSCI's index of shares elsewhere in Asia gained 2.7 percent.

EXPORTS HELP JAPAN PICK-UP

Data on Wednesday showed a 5.4 percent fall in core orders of Japanese factory equipment in April. Analysts said that suggested some hesitation among firms over the sustainability of a pick-up in exports and industrial output.

"We are starting to see signs of the Japanese economy recovering, and exports are leading this," said Takahide Kiuchi, chief economist at Nomura Securities. "But that doesn't mean domestic demand has recovered, especially capital spending."

It is still unclear if signs of improvement in some markets point to the return of sustained consumer demand or if companies are merely replenishing depleted inventories. A solid rebound in demand is needed to ensure a global recovery.

European Central Bank policymaker Guy Quaden of Belgium said the ECB would only unwind its support when there was significant improvement in the economy -- apparently taking a different line from fellow policymaker Juergen Stark, who has said the ECB will withdraw when recovery starts. Analysts expect the ECB to keep interest rates on hold throughout 2010 as the 16-nation bloc edges out of recession.

Data from China's National Bureau of Statistics showed consumer prices fell 1.4 percent in the year to May, marking the fourth consecutive month of deflation.

Producer prices fell 7.2 percent, with the rate of decline accelerating from a 6.6 percent drop in the 12 months to April.

Most economists have played down worries of deflation and they could be swept aside later in the week if the newspaper reports that China's May industrial output rose by a forecast-beating 8.9 percent from a year earlier prove accurate.

"If this is true, it certainly would prove to be quite a boost for the market," said Hideyuki Ishiguro of the investment advisory department at Okasan Securities in Tokyo.