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Eyes on US banks as earnings boost recovery hopes

New York, July 17, 2009

Investors were looking to Bank of America and Citigroup for a fresh dose of earnings optimism on Friday, after strong reports from JPMorgan Chase and IBM raised hopes for a global recovery.

But Google's results failed to excite and there was also a note of caution from JPMorgan, which along with record investment banking and trading results reported a surge in consumer credit losses -- signalling more pain on Main Street.

Global stock markets have rallied this week, despite patchy economic data from the United States, as better-than-expected earnings from several big US companies, led off by Goldman Sachs on Tuesday, raised hopes of better times ahead.

 "Earnings from US banks have been upbeat, but there are concerns that the positive results could be limited to the second quarter," said Takahiko Murai, general manager of equities at Nozomi Securities.

 "Some institutions appear to hold significant bad loans and third-quarter results may not be as encouraging."    

Bank of America and Citigroup were both due to report second-quarter results later on Friday, along with corporate bellwether General Electric.

Asian share markets extended this week's gains. Japan's Nikkei rallied for its fourth straight session to rise 0.6 percent on the day and just over 1 percent on the week.

The MSCI index of stocks elsewhere in the region rose 0.7 percent for a gain this week of more than 5 percent.

Record investment banking fees fuelled a 36 percent rise in quarterly profit for JPMorgan, topping Wall Street forecasts, though the bank warned that credit quality in consumer mortgages and credit cards was deteriorating faster than expected.

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

The company sharply raised its full-year forecast as it benefited from focusing more on higher-margin businesses in software and services.

Google's quarterly profit beat expectations, but the weak economy and slump in advertising spending took a toll on revenue growth and the price of its search ads. Shares of Google fell 3 percent after the results, which exceeded average forecasts but failed to live up to the heightened expectations of investors following Intel Corp's strong earnings earlier this week.

"They did decently, but obviously it's not high enough for the Street," said Laxmi Poruri, an analyst at Primary Global Research.

In Japan, members of the government's key economic panel said on Friday the Bank of Japan should work to stop prices falling further, as a deflationary spiral posed one of the biggest risks to recovery in the world's second-biggest economy.

Singapore, which rebounded strongly out of recession in the second quarter, posted a surprise 5.2 percent fall in June non-oil exports from the previous month.

Despite recent signs that Asian countries are recovering faster than their Western counterparts, exports remain a question mark hanging over the region's export-reliant economies, with demand still weak in key developed world markets. - Reuters




Tags: Citi | Bank of America | US banks |

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