America celebrates in third quarter

Some of the biggest companies in corporate America yesterday kicked off the third-quarter earnings season and lifted hopes that the world's largest economy may be entering a sustained recovery.

The banking sector led the way with Merrill Lynch posting a 50% improvement in profits to just over $1bn (£597m) and Bank of America reporting a 31% increase in earnings to $2.9bn.

Consumer products group Johnson & Johnson reported a 20% jump in earnings on the back of strong sales in its healthcare products and even Delta Air Lines in the crisis-hit travel industry posted narrower than expected losses.

Analysts are eagerly watching the third-quarter earnings reports for signs that corporate America is emerging from a protracted downward spiral. About 20% of the top 500 companies in the US report earnings this week.

There was also some encouragement from US chain store sales, according to Instinet Research. Over the past week sales were up 3.6% on a year earlier, perhaps indicating a return of consumer confidence.

Another key indicator also pointed to recovery as two of the leading newspaper publishers in the US, Dow Jones and Gannett, reported improving profits on the back of a pick-up in advertising.

The positive figures helped propel Wall Street further gains on, after the main indices reached levels on Monday not seen since early or mid-2002. The Dow Jones industrial average of leading shares rose 23 points to 9,790 by mid-afternoon. The technology-weighted Nasdaq was up four points at 1,937.

"Earnings are expected to be good, but this is more confirming than anything," said Douglas Nardi, director at Scudder Private Investment. "We're still early into the earnings season and I don't think people want to get too far ahead of themselves."

But the earnings growth was enough to revive the dollar after seven weeks of declines. In early New York trade, the euro was down 0.6% at $1.1638 and the pound was 0.4% lower at $1.6593.

Investors were awaiting the third-quarter figures from chip maker Intel after the close of the session.

Merrill Lynch, the biggest US brokerage, was given a boost by higher earnings at the formerly moribund global markets and investment-banking business. The results were Merrill's third straight quarter of earnings growth.

The investment bank was involved in some of the biggest corporate deals during the quarter, including a $7.8bn transaction between mobile phone network Orange and parent company France Télécom, and Lehman Brothers' $2.6bn acquisition of money manager Neuberger Berman.

The figures will be welcomed by the bank, struggling to put turmoil among its management and links to the Enron scandal behind it.

Bank of America, the number three US bank, was aided by growth in mortgage banking income and swelling deposits. Mortgage banking income more than tripled to $666m as Americans continued to buy new homes in record numbers, while credit card income rose 33% to $513m.

Delta reported a loss of $164m for the quarter, compared with a loss of $326m a year earlier. But chief executive Leo Mullin warned against over-confidence. "Over the past two years our industry has undergone dramatic, permanent changes. Today's results, while somewhat better than we expected, show that Delta's challenges are not yet over," he said.

The airline has laid off 16,000 staff since the September 11 terrorist attacks and yesterday said it would sell 11 aircraft and defer the delivery of eight additional planes.

Johnson & Johnson raised its 2003 earnings guidance, crediting the strong sales of its pioneering Cypher stent. The company earned $2.1bn in the third quarter, up from $1.7bn.

Motorola, the mobile phone handset maker, started the earnings season on Monday with a better than expected performance.