G7 plan, U.S. earnings in focus

By Burton Frierson

NEW YORK (Reuters) - The U.S. economy's recessionary slide and the health of its banks will preoccupy investors this week as markets deliver their verdict on global officials' latest efforts to halt the world financial crisis.

Finance chiefs from the Group of Seven rich nations grappled at the weekend with proposals for tightening global scrutiny of banks and pressed the private sector to step up efforts to settle the financial turmoil still emanating from the U.S. mortgage market meltdown.

The eight-month-old crisis has frayed the nerves of investors, who will also get the latest tally of damages when major financial firms such as JPMorgan Chase (JPM.N: Quote, Profile, Research), Citigroup (C.N: Quote, Profile, Research) and Merrill Lynch (MER.N: Quote, Profile, Research) report quarterly earnings in the next week or two.

In Europe, Germany's April ZEW survey of investor sentiment on Tuesday could signal how well the euro zone's biggest economy is coping with a strong euro. Investors will also watch Wednesday's euro zone March consumer price data for any retreat from February's 16-year high.

U.S. retail sales and inflation data will gauge the slide of the world's largest economy into the recession, or possibly even the combination of slow growth and inflation known as "stagflation", while earnings from non-financial companies will also be watched closely.

"This is basically the first quarter of earnings that's a recession quarter," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York. "There is not a lot of reason to think it should go particularly well."

In fact, the early signs do not bode well for stocks, though this should add to the safe-haven allure of U.S. government bonds.

Bellwether blue-chip General Electric Co (GE.N: Quote, Profile, Research) posted an unexpected 6.0 percent drop in first-quarter profit on Friday, the biggest shock yet to American industry from the credit crisis.