American consumers believe economic recovery is under way

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Confidence among American consumers soared this month taking it back to the level of optimism enjoyed a year ago, according to a key survey published yesterday.

In the latest sign of an emerging recovery, the University of Michigan's consumer sentiment index surged for a fourth straight month. The driving force behind the rise was a large jump in consumers' expectations about the future, a sign that "main street" America believes a recovery is under way.

The report came a day after separate figures recorded a surprise fall in new jobless claims and a massive rebound in the Philadelphia manufacturing index.

Yesterday's data undermined expectations that the Federal Reserve Bank will cut interest rates when it next meets on 29 and 30 January. Hopes of a rate cut rose after the Fed chairman, Alan Greenspan, said it was "premature" to say the recession was over and the Fed's Beige Book talked of "scattered" signs of recovery.

Alan Day, at Banknorth Investment Management, said: "The Michigan number is consistent with other numbers we have seen that show things are starting to look up."

The US data contrasted with a gloomy outlook for the eurozone by the European Commission. The European Union's executive said the 12-nation area could contract as much as 0.3 per cent in the fourth quarter compared with the third. At best it will grow just 0.1 per cent. It said a new model to predict quarterly GDP also forecast growth of between 0.1 and 0.4 per cent in the first three months of this year. This follows the rise of 0.1 per cent in eurozone GDP in the third quarter of 2001 reported earlier this month by Eurostat, the EU's statistical agency.

"It would imply that the trough of the recent slowdown is situated in the last quarter of 2001, but also that activity will only moderately accelerate at the beginning of this year," the Commission said.

Nigel Anderson, the European economist at Royal Bank of Scotland, said it was lower than the European Central Bank's range for this year of between 0.7 and 1.7 per cent, adding that this could boost hopes of a rate cut "at the margin".