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US economic fears dog stocks despite Greek hopes

LONDON (AP) — Concerns over the U.S. economic recovery continued to weigh on markets Friday despite hopes that Greece will get a second bailout.

For most of Friday, the focus had been on Greece after EU leaders backed another bailout should the Greek Parliament approve euro28 billion in austerity measures in a vote next week.

The austerity measures have to be passed for the next batch of money due from last year's bailout and for a second bailout to be agreed. If lawmakers fail to back the package, then Greece will face a default on its debts.

The markets are hopeful that Greece will get another financial lifeline to see it through the next couple of years. That has eased concerns over what impact a Greek debt default would have on Europe's financial system. Many analysts think a default could trigger mass panic in the markets, akin to what happened in the aftermath of the collapse of U.S. investment bank Lehman Brothers back in 2008.

"Investors seem a little more convinced today that the risk of default has diminished," said Ben Critchley, senior sales trader at IG Index.

In Europe, the FTSE 100 index of leading British shares was up 0.7 percent at 5,716 while Germany's DAX rose 0.4 percent to 7,177. The CAC-40 in France was 0.7 percent higher at 3,813.

One market bucking the trend was Italy's FTSE MIB, which was trading 0.5 percent lower as bank stocks were hit by a warning from Moody's that it may downgrade its rating on a number of the country's banks.

Wall Street was trading lower, however, after figures confirmed that the U.S. economic recovery had slowed dramatically in the first three months of the year. The Dow Jones industrial average was down 0.4 percent at 12,000 while the broader Standard & Poor's 500 index fell a similar rat to 1,279.

The state of the U.S. economy has been a key driver in markets this week alongside the Greek debt crisis. Friday's news did little to alter perceptions that the world's largest economy has slowed down sharply this year.

The U.S. government reported that the annualized growth rate dropped to 1.9 percent in the first quarter, up from the 1.8 percent previously estimated but slightly lower than expectations for an upward revision to 2 percent. In the last quarter of 2010, the U.S. posted growth of 3.1 percent.

Disappointment from the lower than expected U.S. growth figures was partially offset by the news that orders of long-lasting goods rose by a healthy 1.9 percent in April. That was in line with expectations and followed a steep 2.7 percent decline in April, when orders were knocked by the disruption caused by the Japanese earthquake and tsunami.

"The rebound in orders for new durable goods in May will help ease any fears that the economy is headed for a double-dip recession," said Paul Ashworth, chief U.S. economist at Capital Economics. "Nevertheless, it doesn't change the broader picture that economic growth has slowed sharply over the past few months."

The weaker tone in U.S. stocks also hit the euro, which was trading 0.6 percent lower at $1.4182. When investors' risk appetite is low, the euro usually suffers, especially against the dollar.

"Markets are clearly awaiting the Greek parliament's vote on that country's medium-term austerity plan before becoming more positively convinced about the euro's prospects in the coming weeks," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.

Earlier, Asian markets rallied on the Greek bailout hopes.

Japan's Nikkei 225 was 0.9 percent higher to close at 9,678.71, while South Korea's Kospi rose 1.7 percent to 2,090.81.

Hong Kong's Hang Seng added 1.9 percent at 22,171.95, with banking shares getting a boost after Chinese Premier Wen Jiabao wrote a newspaper commentary indicating China is getting its inflation problem under control.

Mainland Chinese shares also gained on Wen's comments. The Shanghai Composite Index rose 2.2 percent, the biggest gain in four months, to 2,746.21, while the Shenzhen Composite Index gained 2.3 percent to 1,136.39.

Meanwhile, oil prices remained pressured by Thursday's decision by the International Energy Agency to make 60 million barrels available over a 30-day period, half of which will come from the U.S. Strategic Petroleum Reserve. The shock decision sent oil prices tumbling by around 5 percent Thursday.

By mid afternoon London time, benchmark oil for August delivery was down 10 cents to $90.92 a barrel in electronic trading on the New York Mercantile Exchange.