Divisions dominate as third quarter begins

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Investors have entered the third quarter deeply divided about what should be happening on financial markets.

While some reckon the global economy is well on the mend and therefore it is time to put more money into stocks and riskier assets, others see fragility and danger, and remain cautious.

With a relatively light data agenda and the next corporate earnings season yet to get fully under way, the coming week is unlikely to see an end to the dispute.

What investors need for a firm commitment to riskier assets -- one that can sustain the relief rally of the last quarter -- is concrete evidence that banks have begun normal lending, consumers are spending and that the economy is growing.

June's U.S. payroll data, which was far worse than expected, provided the opposite message on the economy and brought out the bears. "(It) suggests that the alleged "green shoots' are mostly yellow weeds that may eventually turn into brown manure," economist Nouriel Roubini wrote on his RGE Monitor blog.

But others expect the generally improving economic picture to continue emerging next week, including in Monday's U.S. ISM non-manufacturing data and Friday's Michigan consumer sentiment report.

This disparity of views has led to something of a hiatus on stock markets. While world stocks gained more than 21 percent in a record second quarter, they traded more or less flat in June.

"After having reacted quasi-euphorically to the first hopes that the recession may end soon, the market is now wondering about the timing, nature and strength of the expected economic recovery," BNP Paribas Investment Partners said in a note.