Volkswacht Bodensee - Global markets extend rally on hopes US will avoid recession

Investors in Asia and Europe tracked a rally on Wall Street fuelled by the figures, while they are now awaiting the release of key inflation data later Friday and then the Federal Reserve's latest policy decision next week.

There is growing hope that the Fed will lift interest rates by just 25 basis points, having slowed its pace of increases last month following four straight bumper hikes aimed at bringing inflation down from multi-decade highs.

The US economy grew 2.9 percent in the fourth quarter of 2022, exceeding analyst estimates with help from resilient consumer spending.

While the data did not eliminate recession fears, it offered a reason for optimism that the US central bank will manage to lower inflation without tipping the economy into a major downturn.

- Watering down recession worries -

"The increase in US economic output during the last quarter of 2022 exceeded expectations, watering down fears of an impending recession in the world's largest economy," said ActivTrades analyst Ricard Evangelista.

"Such a scenario is likely to amplify the voices of those advocating for the continuation of the Federal Reserve's hawkish monetary policy, offering some support to the dollar."

Central banks spent last year ramping up borrowing costs to battle soaring prices and any sign of strength in the economy was taken as a bad sign that policymakers would continue to tighten policy sharply, threatening companies' profits.

Concern towards the end of the year focused on a possible global recession caused by the restrictive policies, with several observers warning that top economies were likely to suffer a so-called hard landing.

Thursday's US growth figures showed a slowdown in 2022 from the previous year but a better-than-expected performance, which was described as a "Goldilocks scenario" -- where the figures are neither too good nor too bad.

Yet lingering jitters persist of a possible downturn.

"There being a time lag between interest rate hikes and the effect on the economy, it remains difficult to predict how much of the Federal Reserve's actions so far are having the desired dampening effect," noted Interactive Investor analyst Richard Hunter.

"More pessimistic investors are suggesting that the latest quarter of growth could be the last before previous hikes take full effect, potentially pushing the economy towards recession this Spring."

Investors are also keeping a nervous eye on earnings season, which has thrown up some disappointing figures and downbeat forecasts, including from chip titan Intel.

Shanghai was closed for the Lunar New Year break and reopens next week.

- Key figures around 1130 GMT -

London - FTSE 100: UP 0.2 percent at 7,773.92 points

Frankfurt - DAX: UP 0.3 percent at 15,172.35

Paris - CAC 40: UP 0.2 percent at 7,112.53

EURO STOXX 50: UP 0.3 percent at 4,185.34

Tokyo - Nikkei 225: UP 0.1 percent at 27,382.56 (close)

Hong Kong - Hang Seng Index: UP 0.5 percent at 22,688.90 (close)

Shanghai - Composite: Closed for a holiday

New York - Dow: UP 0.6 percent at 33,949.41 (close)

Euro/dollar: DOWN at $1.0883 from $1.0892 on Thursday

Pound/dollar: DOWN at $1.2369 from $1.2403

Euro/pound: UP at 87.99 pence from 87.78 pence

Dollar/yen: DOWN at 129.90 yen from 130.22 yen

Brent North Sea crude: UP 1.2 percent at $88.48 per barrel

West Texas Intermediate: UP 1.2 percent at $81.95 per barrel

K.Thomson--BTB