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Investors appear optimistic despite US econom -

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LISA MILLAR: As the American economy lurches closer to recession, there are signs that the
sharemarket there is making a gradual recovery from the turmoil of recent months.

Wall Street had its best day in a fortnight after some corporate heavyweights, including two big
banks, posted better than expected profit forecasts.

Investors appear cautiously optimistic despite a new record oil price and a deepening of the US
housing slump.

Here's our Business editor Peter Ryan.

(Sound of Wall Street closing bell)

PETER RYAN: After months of volatility, and heavy losses followed by steep gains, Wall Street is
awash with fresh optimism.

No one knows how long the sunshine will last, and few pundits are game to call an end to the rout.

But some big corporate names believe the effects of a likely recession in the US will be limited.

Gordon Graylish, vice president of the computer chip giant Intel, says while the American consumer
is pulling back, the rest of the world is ready to spend.

GORDON GRAYLISH: We're seeing strong demand globally. I mean, that's... 75 per cent of our business
is outside the United States, but across the board, even, for example, if I look at the UK, France,
Germany, we're seeing over 20 per cent growth in mobile markets, in the notebook computers, and
there's still another five billion people out there that haven't got computers.

PETER RYAN: Intel was among a handful of blue-chip companies delivering better than expected
results despite the economic gloom.

America's third biggest bank JP Morgan Chase also surged after comments from its chief executive
that the credit crisis was nearing an end.

Investors ignored a 50 per cent fall in the bank's first quarter profit and a $5 billion write-down
relating to its sub-prime mortgage losses.

Another big bank, Wells Fargo, also rose after beating profit estimates, amid comments that it had
limited losses from slumping home prices in California.

But that doesn't mean the sub-prime mortgage meltdown is any closer to hitting a bottom.

KIL HUH: One in 33 homeowners is projected to be in foreclosure within the next two years as a
result of sub-prime loans made in 2005 and 2006.

PETER RYAN: Independent research from the respected Pew Center in the US comes on top official
figures which show housing starts at their lowest annual total since 1991.

Researcher Kil Huh says the outlook in certain mortgage-belt states is especially grim.

KIL HUH: For instance, in Nevada, one in eleven homeowners is projected to be in foreclosure in the
coming years, and in Arizona, one in 18 homeowners face similar circumstances.

PETER RYAN: While tougher lending standards will make little or no difference to most foreclosure
cases, Kil Huh says greater federal regulation is the only answer.

KIL HUH: It directly speaks to the need for stronger commonsense underwriting standards at the
federal level. It's very difficult to have 50 different state laws that regulate the mortgage
industry.

PETER RYAN: Others, like Peter Morici of the University of Maryland in the United States, believes
the banking system also needs a reputation overhaul, if confidence is to be restored.

PETER MORICI: There's still a perception that dodgy banking practices prevail and those are
well-founded fears.

PETER RYAN: Peter Morici is also sceptical about recent attempts to restore faith in the US banking
system such as the Federal Reserve's liquidity injections and swaps of dodgy sub-prime investments
for US treasury bonds.

PETER MORICI: It really hasn't had a lot of effect to unlock the credit crunch. The basic problem
is the banks can no longer make new loans, wrap them into securities, and sell them to fixed-income
investors such as insurance companies and pension funds, because those fixed income investors
really don't trust the banks to create bonds that have real value or the value they claim.

PETER RYAN: The worsening housing slump comes amid more gloom from the Fed, which in its so-called
Beige Book noted that economic conditions have weakened, bolstering hopes of another interest rates
cut.

And the spiralling price of oil is also dragging down US consumer confidence.

It hit a fresh high of US$115 a barrel overnight: that's 80 per cent higher than a year ago.

BYRON KING: I don't see how the world can live with continuing increases of the magnitude of what
we've seen, say, in the last six months.

PETER RYAN: As Americans face the prospect of paying $4 a gallon for their fuel, oil analyst Byron
King says no one should expect the oil cartel OPEC to increase supply to the US and the rest of the
world.

BYRON KING: All of the OPEC countries that are exporting oil are making about as much money as
they've ever made and things are pretty good for them. They're just not thinking about, you know,
helping us out as much as they're thinking about helping themselves out.

PETER RYAN: The renewed optimism from Wall Street drove the Australian sharemarket around 1.5 per
cent higher this morning.

Financial stocks like the positive talk from US banks, and resource stocks lapped up the record oil
price with BHP Billiton gaining more than two per cent.

LISA MILLAR: Business editor Peter Ryan.