U.S. GDP data adds to hopes for global recovery

By Daniel Trotta

NEW YORK (Reuters) - Improving vital signs across the globe -- from U.S. GDP to Japanese factory output and British house prices to German retail sales -- raised hope on Friday that the world economy was responding after months in intensive care.

The U.S. economy shrank 5.7 percent from the first quarter of 2008, less than the previous estimate of 6.1 percent and slightly worse than market expectations for a 5.5 percent fall.

The report confirmed that economic activity declined for three straight quarters for the first time since 1974-1975, but U.S. stocks .N rose in part on data showing corporate profits after taxes increased 1.1 percent -- the first increase in a year and a turnaround from a 10.7 percent drop in Q4.

The potential General Motors Corp GM.N bankruptcy also hovered over the world financial picture as GM shareholders and bondholders braced for a Chapter 11 bankruptcy expected by Monday's restructuring deadline.

"It's clear to me, based on the market action, that we've turned a corner in this economy," said Sasha Kostadinov, portfolio manager at Shaker Investments. "The question that I have is, when we get a clear view of what's around the corner, is it going to be better growth and moderate inflation, or is it going to be slow growth and bad inflation?"

While U.S. stocks marked their third straight monthly advance, the dollar fell to five-month lows against a basket of currencies as an advance in global equities and signs of an easing global recession drove investors to snap up higher- yielding currencies and riskier assets.

Gold, metals and soft commodities also rose on the weak dollar. Oil rose to a six-month high above $66 per barrel.

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