U.S. banks, at the center of the world's financial crisis, will command investor focus on Friday with Bank of America and Citigroup results following strong showings from their peers.

Stock markets have rallied this week as better-than-expected earnings from several big U.S. companies have raised hopes of better times ahead.

But many experts say an ongoing stream of evidence of recovery is needed to propel them much higher. Broader economic data continues to be mixed.

JPMorgan Chase & Co said on Thursday record investment banking fees helped drive a 36 percent rise in quarterly profit but that credit quality in consumer mortgages and credit cards was deteriorating faster than it expected.

That warning tallied with analysts' fears that banks' improving performance could be confined to the second quarter when equities soared.

Earnings from U.S. 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.

Earlier in the week, Goldman Sachs Group Inc said quarterly earnings surged 33 percent, just nine months after the U.S. Treasury bailed out the nation's largest banks -- many crippled with bad debts stemming from a U.S. housing market meltdown -- with $125 billion of taxpayer money.

But the trouble is far from over.

CIT Group Inc is scrambling to secure financing after the collapse of rescue talks with the government left the 101-year-old U.S. lender to hundreds of thousands of small and medium-sized businesses on the brink of bankruptcy.

Signs of upturn have come from IBM, which raised its full-year earnings forecast on Thursday, following leading chipmaker Intel Corp's stronger-than-expected earnings and outlook announcement this week.

European shares rose for the fifth day running, led by banks and commodity stocks ahead of earnings from Citi, Bank of America and General Electric.

Japan's Nikkei rallied for a fourth day and has gained just over 1 percent on the week.

ECONOMIC PICTURE PATCHY

The euro zone recorded a trade surplus in May as imports contracted more than exports, data showed on Friday.

Year on year, exports plunged 24 percent but imports fell even more, 27 percent, underlining the weakness of both domestic and external demand amid the global economic downturn.

Nonetheless, Germany's economy minister said gross domestic product may have bottomed out in the second quarter after a record contraction in the first three months of this year.

There is much to suggest that overall economic activity may have stabilized in the second quarter of this year, the ministry said in its monthly report for July.

Bank of England Deputy Governor Charles Bean said in an interview published on Friday that Britain would take time to get going again but growth could resume by the end of the year.

In Japan, members of the government's key economic panel said 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.

But Friday's frontline economic evidence is again from the United States, with June building permits and housing starts figures due at 1230 GMT.

Following a dramatic collapse coupled with irresponsible lending practices, the housing market has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country.

Investors fretting over the health of the global economy had received a fillip from China on Thursday, with surprisingly strong economic growth of 7.9 percent in the second quarter, fueled by state spending and bank lending, reinforcing hopes it may lead the world out of recession.

But the Philadelphia Federal Reserve Bank reported factory activity in the U.S. Mid-Atlantic region posted a worse-than-expected decline in July, contracting for the 10th consecutive month.

This is going to be a bumpy ride for the next six months for the economy. We are going to have volatility in the data because they are not all going to all turn at the same time, said Kurt Karl, chief U.S. economist at Swiss Re in New York.

(Writing by Mike Peacock; Editing by Jason Neely)

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