Europe economies dive but U.S. consumers perk up

By Nick Zieminski

NEW YORK (Reuters) - Euro zone economies shrank far more than expected in the first quarter, with Germany posting its worst performance since reunification, but in the United States on Friday there were signs of improving consumer sentiment and a stabilizing manufacturing sector.

Gross domestic product for the 16 countries using the euro contracted by 2.5 percent quarter-on-quarter, or by 4.6 percent year-over-year, the worst on record. Europe's largest economy, Germany, fell by 3.8 percent.

The figures added to evidence that despite signs the worst global recession in six decades might be easing, recovery remained elusive.

"It was a massive surprise just how weak the data was," said Paul Mackel, HSBC senior currency strategist.

Central and Eastern Europe face at least another year of economic pain, regional bankers and policymakers said Friday. They urged western European institutions to do more to help. Ukraine said it needs more funds on top of an existing $16.4 billion (10.5 billion pound) IMF bailout.

Economic signals in the United States were more encouraging. U.S. consumers' mood improved in May, as a widely tracked measure of consumer expectations was at its highest level since October 2007.

U.S. industrial output fell at a slowing rate, while machinery orders in Japan also surpassed expectations, both suggesting global industry was at least starting to stabilise.

Energy and financial shares pressured Wall Street, and the Standard & Poor's 500 index .SPX closed down 1.1 percent. Major U.S. indexes were lower for the week, as were European markets .FTEU3, despite a 0.5 percent gain on Friday.