TOPWRAP 3-US economy still shaky; France, Germany show life

* Germany, France report surprise GDP gains

* US retail sales weak, jobless claims rise again

* US hedge fund guru's stock purchases help market

* Copper prices at highest levels for 2009

CHICAGO, Aug 13 - Fresh data on Thursday dented hopes the U.S. economy is on the verge of a strong rebound, even as Western Europe's two largest economies reported a surprising return to growth in the second quarter.

Many pundits had expected the United States to lead the global economy out of recession, but the world's largest economy was soundly beaten to the punch as its retail sector struggled to lure skittish consumers.

Massive job losses and sharp declines in the housing market have prompted many Americans to pare back spending.

U.S. households are "in no position to drive a decent economic recovery," said Paul Dales, economist at Capital Economics in Toronto.

But prospects for a U.S. recovery got a boost from news that hedge fund manager John Paulson, who made a fortune betting against financial companies in 2007, had bought shares of selected banks and drug makers.

And prices for copper, a key industrial material, jumped to fresh 2009 highs on a brighter global demand outlook.

An unexpected rise in second-quarter GDP in Germany and France, pillars of the euro zone economy, boosted financial markets, which are still fretting over the potential for a global economic pickup.

German Economy Minister Karl-Theodor zu Guttenberg was cautious about the figures. "There are no grounds for euphoria, because we're still a long way from seeing the economy back at the level that it was at last year."

Europe's recovery will likely be patchy at best, with Britain, Italy and the Netherlands still weak and parts of eastern Europe, which rely heavily on exporting to the wealthier western nations, reporting a far gloomier outlook.

GDP in the euro zone fell in the second quarter, albeit by a marginal 0.1 percent.

Germany and France emerged from lengthy recessions in April-June, with their gross domestic product rising 0.3 percent quarter-on-quarter. The much smaller Portuguese and Greek economies matched that growth.

The surprising German data came just weeks before its citizens head for the polls. The country's jobless rate fell in July for the first time in nine months.

"It looks like the recession's over. We're entering a phase of stabilization and slow growth," Christian Dreger at the DIW Institute. "The main risk for Germany is a sharp rise in unemployment."

U.S. CONSUMERS NOT SPENDING

U.S. retail sales for July were much weaker than forecast, while weekly jobless claims rose more than expected.

Retail sales excluding automobiles and gasoline, a popular measure with analysts, fell by 0.4 percent. It was the fifth consecutive monthly decline.

Headline retail sales fell by only 0.1 percent as the government's "cash for clunkers" auto subsidy program drove more traffic to car dealerships. But new car sales may have drawn demand from other parts of the retail universe.

"While vehicle sales have rebounded, core retail sales have floundered after severe declines in late 2008," said Steven Wieting, economist at Citigroup.

On the jobless front, those filing for unemployment benefits for the first time in the week ended Aug. 8 came in at an unexpectedly higher 558,000, prompting doubts that the long, deep cycle of U.S. layoffs is finally ending.

The latest reading on continued claims, or those staying on the unemployment rolls, fell to 6.2 million from 6.3 million, a decline that suggested more long-term unemployed workers are exhausting their benefits.

Taken together, the data dulled hopes for a consumer-led U.S. recovery are elusive. Some forecasters see that trend as part of the "new normal" for the United States: one that will keep economic growth low even when the brutal recession ends, which many expect to happen in the current quarter.

Markets need to get used to "a world without the U.S. consumer as last resort," said Alan Ruskin, chief international strategist at RBS Securities in Greenwich, Connecticut.

On Wednesday, the U.S. Federal Reserve issued a more upbeat, if guarded, assessment of the U.S. economy.

Following a two-day policy meeting it said the economy is "leveling out," the first time in a year that its post-meeting guidance did not characterize the economy as contracting, weakening, or slowing.

WAL-MART EARNINGS BEAT STREET, DESPITE SOFT SALES

Wal-Mart Stores Inc., the world's largest retailer, reported on Thursday unexpectedly better earnings, but it warned that the economy remained a challenge.

The key metric for the giant discounter -- sales at stores open at least a year -- unexpectedly fell by 1.2 percent. Wall Street had looked for a gain of 0.85 percent.

Wal-Mart has benefited from "trade-down" from pricier retail chains, as many American consumers attempt to save cash, especially on staple items such as groceries and household products. But even that trend has its limits.

"Our customers are more disciplined in their spending," Wal-Mart CEO Mike Duke said on a recorded call, adding that customers are saving more and consuming less.

Department store operator Kohl's Corp. gave a grim outlook for the rest of the year, looking for same-store sales at its 1,000-plus outlets to fall as much as 5 percent.

STOCKS, EURO, INDUSTRIAL METALS RISE

Stocks, commodities and the euro rose due to the GDP surprise, while the dollar dipped. The euro climbed 0.4 percent to $1.4288, and the dollar was down 0.5 percent against a basket of major currencies, as investors switched to riskier assets such as commodities.

World stocks as measured by MSCI were up 1.1 percent, with U.S. markets rising despite the soft economic data. Wal-Mart surged by 2.8 percent to a four-month high.

Major U.S. stock indices are bumping their 2009 highs. Paulson's disclosure late on Wednesday that he bought large stakes in several banks, including Bank of America Corp. lifted financial stocks and helped sustain the rally.

Paulson of the eponymous Paulson&Co is credited for anticipating the looming credit crisis in 2007.

Meanwhile, copper led advances among industrial metals, reaching a 10-month high of $6,450 a tonne on the London Metal Exchange. Lead, zinc and aluminum prices also rose.

"The German numbers are very helpful, the French numbers are very helpful, and that's supporting the copper market," said Sterling Smith, analyst for Country Hedging in Inner Grove Heights, Minnesota. "I think it helps confirm the sentiment that we are beginning a very slow recovery."