NEW YORK - Euro zone economies showed signs on Thursday that the worst recession in six decades is easing but data from the United States on jobless claims and business conditions signalled a bumpy recovery.

In Britain, prospects were clouded by a warning over government debt and political uncertainty as Standard & Poor's lowered its outlook to negative and said it might cut the country's precious triple-A credit rating.

U.S. Treasury Secretary Timothy Geithner said the financial system was steadying from the taxpayer-funded bailout of banks but that care must be taken to ensure normal market forces are allowed to work.

Broad regulatory reforms should be ready to unveil in a few weeks, including protection for consumers, he said, as the Obama administration faces the task of striking the delicate balance between intervention and allowing market participants latitude to operate.

Jobless claims in the United States, the world's biggest economy and epicentre of the global crisis, rose to a record last week while new claims fell by 12,000.

Other data showed manufacturing in the U.S. Mid-Atlantic area shrank in May for the eighth straight month.

The numbers continue to show a weak economy, said Subodh Kumar, chief investment strategist at Subodh & Associates in Toronto.

The Conference Board research firm suggested more promise for U.S. growth, with its index of leading indicators for April showing the first rise since June 2008.

In that vein, the Congressional Budget Office said the U.S. economy will likely start growing again in the second half of 2009, but that the jobless rate could peak at more than 10 percent against the current 8.9 percent.

The new reports came a day after the Federal Reserve, in minutes released from its April policy meeting, cut its outlook for U.S. growth over the next three years and said a full recovery could take five or six years.


Financial markets saw the data in total as further evidence that a quick recovery is unlikely, with U.S. stocks .N down more than 1.6 percent and European shares .FTEU3 closing 2 percent lower.

The British pound tumbled against the dollar and the euro on the S&P report, which said public debt could approach 100 percent of gross domestic product and stay there in the medium term.

Still, the euro zone offered some grounds for cautious optimism.

Markit's Eurozone Flash Services Purchasing Managers Index, a measure of service and manufacturing activity, rose to 44.7 in May from 43.8 last month, beating the consensus estimate.

May was the third month in a row the index picked up and took it to its highest level since October.

The PMI index showed France's economy performing more strongly than the euro zone as a whole. Markit said a recovery in France could be earlier than current forecasts of a rebound in the fourth quarter.

The rate of decline in the private sector in Germany, Europe's largest economy, was its slowest in seven months.

Predictions by some economists of a return to growth as early as the last quarter of this year are tempered with concerns that data may yet obscure more complex underlying weaknesses in the economy.

It is grounds for hope that things will improve over the next few months, said Peter Dixon, an economist at Commerzbank. I'm not getting carried away.

S&P, in its ratings warning on Britain, cited rising government debt and uncertainty over how any new government would repay it after an election due by mid-2010.

Other ratings agencies kept a stable outlook for Britain.

This is a reality check for the UK government. They are not the U.S., said Kenneth Broux, an economist at Lloyds TSB Corporate Markets.

Singapore's economy shrank 14.6 percent in the first quarter at an annualised and seasonally adjusted rate, less than forecast, prompting the trade ministry to talk of signs the country's worst recession is bottoming out.

The small Southeast Asian state, a proxy for global trends due to its heavy exposure to international trade, saw its exports slip back in April from March after two months of growth, reinforcing a view that there is no clear recovery.

Singapore's April exports to the United States and Europe shrank by more than 30 percent and to China by 15 percent.