The world's top two steelmakers and leading carmakers said on Wednesday any return to growth would be gradual, casting doubt over some economists' forecasts for a recovery starting later this year.

Upbeat earnings reports globally in the past few weeks have propelled stock markets higher and prompted investors to take on more risk in their portfolios as they grow increasingly confident the world economy is on the path to recovery.

But ArcelorMittal and Nippon Steel Corp posted quarterly losses on Wednesday and ArcelorMittal's finance chief said he expected global demand for steel, a gauge of the strength of economies, to fall 10 percent this year.

Carmakers, key consumers of steel, also gave downbeat assessments of recovery prospects.

Japan's Nissan said it did not see a convincing recovery in global car demand, despite some bright signs in China. Honda lifted its annual forecast but the boost came from cost cuts and executives were downbeat on demand.

France's Peugeot said Europe's car market would not start recovering until late 2010.

Retail sales in Japan offered more gloom.

They fell a deeper-than-expected 3 percent in June from a year earlier, suggesting worsening job and income conditions were offsetting government stimulus measures in the world's second-biggest economy.

The government has taken various measures to stimulate demand but the effect isn't spreading broadly to the economy, said Takeshi Minami, chief economist at Norinchukin Research Institute.

With wages falling and summer bonuses on the decline, consumers are in no mood to spend. The effect of government payouts to households is already tapering off.

BUBBLE FEARS

Their remarks contrasted with more optimistic expectations of many economists, who expect the United States, the world's biggest economy, to start clawing its way out of the housing-led recession in the third quarter.

According to a Reuters survey, the U.S. economy will show its fourth straight quarter of gross domestic product declines in the second quarter, but at a slower pace. U.S. GDP data are due to be released on Friday.

China's economic growth, fuelled by a 4 trillion yuan ($586 billion) pump-priming package and record bank lending, continues to spark economic activity, including infrastructure investment.

Two Chinese construction companies shone in their stock market debuts on Wednesday, with China State Construction Engineering Corp surging as much as 90 percent in Shanghai and building materials group BBMG Corp rising 59 percent in Hong Kong.

But they heightened concerns about a speculative stock market bubble forming, and how Beijing might respond, prompting a Shanghai market sell off.

The main index .SSEC, which is off-limits to most overseas investors, dropped 5 percent in its biggest one-day fall for 8 months after a 65 percent rally since March.

The market has been roaring higher since March without a pause, so a correction is natural as investors took profits amid mounting concern over possible government intervention, said Li Mingliang, strategist at Ping An Securities Co.

However, there's no sign yet of any change to the government's loose monetary policies, so it's too early to judge whether the bull run has ended.

LENDING CLAMPDOWN

In Europe, consumers, facing a clampdown on credit to households and firms, showed no sign of raising spending. The European Central Bank said it would continue to tighten credit standards in coming months, though at a slower pace.

ECB data showed firms' demand for loans fell in the second quarter, with companies requesting less finance for fixed investment, mergers and acquisitions and corporate restructuring. [nLT452315]

The bank said, however, it expected net tightening of credit standards applied to loans to households to weaken this quarter.

In Britain, total consumer lending rose by the smallest amount on record in June, although the number of mortgage approvals for house purchases hit their highest level in more than a year.

The Bank of England said banks, building societies and other financiers lent consumers a net 414 million pounds ($678 million) for home purchases and short-term borrowing, barely a 10th of June last year's net new lending.

In the United States, figures due out at 1230 GMT are expected to show durable goods orders down 0.6 percent in June after two consecutive months of increases, although economists say downward momentum has abated.

Earlier, data from the U.S. Mortgage Bankers Association showed U.S. mortgage applications fell in the week ended July 24 for the first time in four weeks, driven by a drop in demand for home refinancing loans as interest rates climbed. 

 (Reporting by Reuters reporters around the world; Writing by Georgina Prodhan; Editing by Alison Williams)