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EU Business, Consumer Confidence Rebounds

European business and consumer confidence bounced back in April for the first time in nearly two years, generating hopes that the worst of the recession may have passed and a recovery - of still uncertain strength - may be in the offing.

In its monthly survey of economic sentiment, the European Commission said businesses and shoppers in both the 27-member European Union and the 16 countries that use the euro were more optimistic in April for the first time since May 2007.

It said there was "a clear improvement in sentiment in industry and among consumers" in both regions.

The economic sentiment indicator measuring confidence from consumers and different business sectors rose to 63.9 in April from March's 60.4 for the entire 27-state European Union.

For the euro area, the indicator rose to 67.2 this month from last month's 64.7 and above analysts' expectations of a modest improvement to 65.3.

Among the larger countries, Italy, Britain, the Netherlands, Spain and Poland saw "significant increases in sentiment" but France and Germany posted smaller pick-ups.

Analysts said the marked improvement in the euro-zone economic sentiment index provided further evidence that the pace of economic contraction may be easing during the second quarter of the year.

"If this trend is confirmed in the coming months, the likelihood that the first quarter marked the trough of this cycle will strengthen," said Daniele Antonucci, European economist at Capital Economics.

On May 15, the EU's statistics office publishes its first estimate of how much the euro-zone shrank in the first quarter of the year. Most economists reckon that the contraction was worse than the 1.6 percent quarterly decline posted in the fourth quarter of 2008, especially after Germany, the euro-zone's largest economy predicted Wednesday that its economy would shrink 6 percent this year.

Despite the modest improvement posted in April, the economic sentiment figures remain near record lows - the current levels are still consistent with falls an annual economic contraction of around 2 percent - while key sectors continue to struggle in the global economic downturn.

Key sectors are still struggling. EU figures showed that construction companies were more downbeat than last month, while industry warned that it has cut back capacity to the lowest levels since 1990 - to 71 percent in the EU and 70.5 percent in the euro area - and expects to reduce investment by around a fifth this year. Auto companies are closing plants and putting people on short hours.

First quarter earnings for industrial concerns showed painful drops in profits and sales. German tire and car parts maker Continental reported sales for the quarter fell 35 percent to euro4.3 billion, compared with the previous year's euro6.6 billion. Automaker Daimler AG reported Tuesday that first-quarter sales fell 26 percent to euro19 billion from euro24 billion.

And though the separate euro zone business climate indicator - which focuses on industry managers - increased in April to minus 3.33 from minus 3.49 in March, the EU said sentiment was still at a very low level and pointed to another year-on-year contraction in industrial output in March, following a record fall in February.

"It also suggests that annual industrial production growth will remain clearly subdued in April," it said.

A survey of industrial investment showed that managers in most EU nations also expect a sharp decrease in investment this year, saying it could drop 18 percent in the EU and by 20 percent in the euro zone. A fall 2008 survey had predicted only a 5-percent drop for both areas.