LONDON (AFP) –
World stock markets rallied on Thursday as investors focused on hopes of a global economic recovery despite deepening fears about a possible swine flu pandemic.

In late morning European trade, Frankfurt climbed 1.90 percent, London added 1.99 percent and Paris gained 1.72 percent as markets were also heartened by overnight US gains.

In Asia, Hong Kong soared 3.77 percent and Tokyo jumped 3.94 percent as investors cheered the first increase in Japanese factory output in six months.

But Japan also warned Thursday that the world's second biggest economy would shrink more than expected this year as it battles its worst recession in decades.

Wall Street had leapt on Wednesday, snapping a two-day losing streak, as investors saw tentative signs of recovery in the US economy.

"The market is a fickle thing -- its focus was firmly on the impact of the Mexican swine flu at the start of the week, pushing risk aversion higher, but now its glare has fallen back on the economic rather than global health outlook," said Calyon analyst Stuart Bennett.

Stocks had tumbled on Monday, dragged down as investors flocked to safe-haven assets, with the travel sector slammed by fears that swine flu would spread across the world.

Equities have since rallied, despite news that the World Health Organisation raised its flu alert to phase five out of six -- signalling that a pandemic was "imminent" after the deadly swine flu outbreak.

However, analysts remain cautious about the uncertain outlook for stock markets.

"The markets have been rallying nicely, but we are entering a period of uncertainty," said Chris Hossain at ODL Securities.

"Several factors could bring this run to a halt -- swine flu, the Chrysler bankruptcy situation, the release of the (US) banking stress tests on Monday -- they all have the potential to be the fly in the ointment that the markets want to avoid."

Fresh fears have emerged about the health of struggling US automaker Chrysler.

The Wall Street Journal reported that the US Treasury Department's talks with lenders to keep Chrysler out of bankruptcy had broken down.

The clock was ticking on a deadline at midnight on Thursday for a viable restructuring plan that would clinch more government funding for Chrysler.

In Tokyo on Thursday, stocks rose as investors returned from a public holiday to digest news that Japanese industrial output rose 1.6 percent in March from the previous month -- the first increase since September.

But the Bank of Japan warned Thursday that the recession-hit economy was expected to shrink 3.1 percent in this fiscal year to March, from a two percent contraction predicted in January.

In US trade on Wednesday, New York's Dow Jones Industrial Average jumped 2.11 percent to finish at 8,185.73 points after two days of losses.

Market action came after the Commerce Department's first estimate of first quarter gross domestic product (GDP) showed the world's largest economy contracted at a brutal 6.1 percent annualized rate.

While considerably worse than the 4.7 percent annual rate of decline expected by private economists, and only slightly better than the 6.3 percent drop in the prior quarter, stronger consumer spending fueled hopes that the recession that began in December 2007 could end soon.

Hours after the GDP report was released, the Federal Reserve said the US economy was still contracting but at a "somewhat slower" pace as it maintained near-zero interest rates and its array of programs to boost easy credit.

LONDON – World stock markets rose sharply Thursday even though the World Health Organization warned that a swine flu pandemic was imminent, as investors warmed instead to the Federal Reserve's suggestion that the worst of the recession in the U.S. may be over.

By mid morning London time, the FTSE 100 index of leading British shares was up 63.15 points, or 1.5 percent, at 4,252.74 while Germany's DAX rose 89.66 points, or 1.9 percent, to 4,794.22. The CAC-40 in France was 47.76 points, or 1.5 percent, higher at 3,164.70.

Earlier, Asian stocks enjoyed a very strong session. Japanese investors returned from a holiday Wednesday ready to buy, and pushed the Nikkei 225 stock average up 334.49 points, or 3.9 percent, to 8828.26. Hong Kong's Hang Seng rose 564.04 points, or 3.8 percent, to 15,520.99.

The positive mood in Asia and Europe followed big gains in the U.S. Wednesday after the Fed's rate-setting Federal Open Market Committee said the recession and financial market conditions had eased slightly since its last meeting in mid-March, though it stressed that economic activity would likely remain weak. It also pledged anew to keep its key bank lending rate at a record low "for an extended period" — it stands in a range of zero percent to 0.25 percent.

"Markets gave the Fed a positive endorsement, as the upward momentum in the equity markets in anticipation of the FOMC decision did not get fazed after the Fed's press release," said Brian Bethune, chief U.S. economist at IHS Global Insight.

There also were some hints of economic renewal in Japan. Industrial production rose for the first time in six months in March, and Honda Motor, the country's No. 2 automaker, said it would manage to turn a profit for the fiscal year.

The brightening outlook has led to predictions of a pickup in spending by both consumers and businesses around the world, though any recovery will likely be long haul. Economists caution that consumers are still hurting after seeing their net worth plunge over the last year and that banks aren't done reckoning their bad assets.

The gains Thursday came despite the World Health Organization's decision to raise the alert over swine flu to level five — one short of it declaring a global pandemic. Fears about the spread of the deadly virus from Mexico had been a big driver in the markets earlier in the week.

"The market is a fickle thing, its focus was firmly on the impact of the Mexican swine flu at the start of the week, pushing risk aversion higher, but now its glare has fallen back on the economic rather than global health outlook," said Stuart Bennett, an analyst at Calyon Credit Agricole.

However, Bennett said the markets' "more relaxed approach" may prove premature as the virus spreads around the world.

A number of countries have confirmed cases of the disease, which is blamed for roughly 170 deaths and 2,955 infections in Mexico.

Elsewhere in Asia, South Korea's Kospi added 2.3 percent to 1,369.36. Taiwan's market led the region, with its benchmark soaring 6.7 percent, after the government said it will allow institutional investors from China to buy into the island's stock market for the first time since the two sides split in civil war decades ago.

Taiwan's decision late Wednesday is the first step in a wide-ranging financial cooperation program it is launching with the mainland, an often hostile rival dating from a 60-year-old civil war.

China's benchmark edged up 0.4 percent, while Australia's index rose 2.3 percent and Singapore's stock measure added 3.3 percent.

The buying is expected to continue at the U.S. open. Dow futures were up 130 points, or 1.6 percent, to 8,255 while the broader Standard & Poor's 500 futures rose 14.60 points, or 1.7 percent, to 883.70.

Oil prices were higher, with benchmark crude for June delivery gaining 78 cents to $51.75 a barrel. The contract Wednesday gained $1.05 to settle at $50.97.

The dollar slipped to 97.78 yen from 97.49 yen. The euro strengthened to $1.3295 from $1.3268.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

ZURICH (Reuters) –
Swiss bank UBS said on Thursday it had axed 2,000 U.S. jobs as part of its latest mammoth round of job cuts announced earlier in April.

"I can confirm the 2,000 job cuts," said UBS spokesman Andreas Kern. The world's biggest wealth manager employs nearly 30,000 people in the United States.

UBS had informed 600 U.S. financial advisors they would have to leave and said it was also cutting 1,400 back office staff, all in wealth management, said a report in Swiss newspaper Tages Anzeiger quoting a different UBS spokesman.

Recently appointed Chief Executive Officer Oswald Gruebel announced on April 15 that UBS would cut 8,700 jobs as part of a new, radical restructuring plan that was aimed at bringing the troubled Swiss bank back to profit.

He said on that occasion that UBS would post a first-quarter net loss of 2 billion Swiss francs ($1.76 billion) when it reported results on May 5.

UBS said at the time of the job-cut announcement that it would shed 2,500 positions in its homeland, Switzerland.

It gave no other details but an internal memo obtained by Reuters said the bank was planning to axe about 4,000 jobs at its prized wealth management division.

UBS' investment bank, whose hefty investments into risky U.S. assets has forced it to make more than $50 billion in writedowns, has been hit hard in previous rounds of job cuts.

($1=1.137 Swiss Franc)

(Reporting by Lisa Jucca; editing by Karen Foster)