Analysts saw more green shoots poke through the world economic freeze last week, hailing the "stress tests" for big US banks as an encouraging sign that a recovery was gaining momentum.

"We view the (stress test) results highly positively," said economists from UBS bank in a report. "They bring us much closer to balance sheet stability that in turn will help restore confidence in the banking system."

The tests, in which US regulators used their own special formulae for analysing assets and risks, showed that 10 big US banks need a total of $74.6 billion in extra capital to help them ride out the financial crisis.

Federal Reserve Chairman Ben Bernanke said nearly all of the banks had sufficient capital to absorb higher losses should the economy worsen, and that the Treasury stood ready to provide more.

The results boosted stock markets since they were seen as an indication that the health of the US banking sector, the source of much of the financial turmoil that spread worldwide over the past year, was better than feared.

"These results produced a collective sigh of relief heard around the world," said Patrick O'Hare of Briefing.com.

"It has been the market's conclusion that these collective results are much less worrisome than had been thought weeks ago."

Japanese share prices hit a six-month high following the news and a huge recovery of European stocks over the past two months extended.

Share prices in London have rebounded almost 30 per cent in less than two months. Frankfurt's main index has risen by a third and Paris's by more than a quarter.

A US jobs report also appeared to offer comfort to investors: losses eased in April with 539,000 jobs axed, while the unemployment rate hit 8.9 per cent, suggesting the economy remains weak but may be stabilising.

Germany, Europe's biggest economy which is in a deep recession, logged better-than-expected production data and a slight rise in trade in March. "It is time to say goodbye to an unprecedented brutal recession in the industrial sector," UniCredit Chief German Economist Andreas Rees said.

"Optimism has spread," said Kazuhiro Takahashi, equity information chief at Daiwa Securities SMBC.

"Investors now believe that the (global) economy is coming out of the worst and that a repeat of the financial meltdown is unlikely."

UBS analysts also pointed to a recent lowering of the interest rates that banks charge each other – a sign that they were becoming less reluctant to provide the "interbank" lending that is crucial for the credit system.

Brian Bethune at analysts IHS Global Insight sounded a note of caution, warning that "credit markets are a heck of a long way from functioning normally and in a manner that would be constructive for economic recovery."

Some economists have said over recent weeks that the world is entering a twilight zone of conflicting signs, with key indicators lighting the way to a recovery even as grim company earnings statements and job cuts continue.

The US, the source of much of the financial turmoil at the root of the downturn, is widely seen as the place to look for signs of economic turnaround which may filter through to other economies.

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