The US economic contraction appears to be slowing, the Federal Reserve said tonight, giving cheer to investors even as data showed the world's largest economy shrank sharply in the first quarter.
European data showed euro zone consumer and business morale picking up and investors also took heart from forecast-beating earnings to push up stocks and keep government bonds firm.
US gross domestic product fell at a 6.1 per cent rate in the first three months of the year, the Commerce Department said, much worse than the 4.9 per cent contraction forecast by analysts in a Reuters poll.
The report offered some glimmers of hope that the downturn could soon slow, with consumer spending up 2.2 per cent and a sharp drawdown in inventories suggesting businesses' stock of unsold goods had been trimmed.
That may have helped the Fed to leave interest rates in the zero to 0.25 per cent range they reached in December. No new policy actions to pump stimulus money into the US economy were announced at the end of its two-day meeting today.
US stocks were already higher after the GDP data suggested companies may start to rebuild inventories, which could help lift the economy out of recession. They extended gains after the Fed statement, with all three major indexes closing up more than 2 per cent.
Nervousness over a new flu strain eased a little as investors took a step back to await developments to gauge the seriousness of the outbreak, which claimed its first life in the United States.
In Europe, the economic picture was mixed. Figures from the euro zone showed consumers and industry were more optimistic than expected in April, adding to signs the economy could be close to its lows.
But growth in euro zone money supply slowed more than expected in March and growth of loans to the private sector fell, the European Central Bank said.
ECB policymakers Juergen Stark and Yves Mersch said there was still room to cut the bank's headline interest rate, although the room was getting limited.