Chrysler in bankruptcy, economic optimism rising

By Ros Krasny and Leika Kihara

CHICAGO/TOKYO (Reuters) - Chrysler filed for bankruptcy protection on Thursday, the first such move by a major U.S. automaker, taking the shine off fresh hints the U.S. and global downturns may be moderating.

But a widening of the swine flu outbreak mostly failed to subdue investors, who saw signs of an economic rebirth in a drop in U.S. jobless claims, upbeat reports from the American heartland and better-than-expected corporate profits.

Chrysler, which makes iconic brands such as Jeep and Dodge, filed for bankruptcy in New York and announced an industry-changing deal with Italy's Fiat after weeks of talks to restructure its debt broke down.

"It's a partnership that will give Chrysler a chance not only to survive but to thrive in a global auto industry," U.S President Barack Obama said.

Both Chrysler and General Motors, its larger and also struggling rival, "are going to come back," Obama said.

Some analysts warned the ripple effect of bankruptcy at Chrysler, as well as broader auto industry woes, could undermine the nascent U.S. recovery.

"It will create a great deal of uncertainty for the industry and suppliers," said Bill Kohlder, co-chair of Butzel Long's Global Automotive Practice.

Jitters about the auto news turned around the U.S. stock market from morning highs but major indices still finished out the month with big gains.