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News that the recession in the United States is over sent stocks climbing in North America and Europe Thursday, but some respected market watchers warned the latest economic data might be hiding a bear in bull's clothing.

The U.S. Commerce Department reported gross domestic product grew 3.5 per cent, at an annual pace, between July and September after contracting for the previous four quarters.

Although the level of economic growth was slightly more than economists had forecast, the recovery is still widely viewed as delicate, driven largely by government stimulus.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., said there is a danger that output turns negative this quarter "as all the government-applied medication begins to wear off."





Much of the GDP growth has come from government subsidies to spur consumers to buy automobiles and houses. The United States offered a rebate of as much as $4,500 (U.S.) to anyone who traded in an old vehicle and bought a new one. It has also been priming the real estate market with an $8,000 tax credit for first-time home buyers.

The recent highs in the stock market have not been backed up with events that traditionally mark a recovery, including bigger trading volumes, rising consumer confidence and strong growth in transportation, Mr. Rosenberg wrote in his daily commentary. Government policies are not being shaped accordingly, he added.

"Subsidy does not address the real fundamental problems in the economy, which is a defunct credit system, a jobs crisis, a massive overhang of vacant homes, apartments, shopping malls and office buildings - not to mention an economy that is becoming dangerously addicted to government stimulus," he said.

Several days of significant losses on global stock markets are signalling a correction in the works that could see stocks lose at least between 10 per cent and 15 per cent of their value, said Dennis Gartman, the U.S. author of the influential daily market newsletter bearing his name,





One troubling sign, he wrote, is that over the last few weeks, stock prices have risen as trading volumes declined, suggesting a thinly supported comeback. Now with markets slipping, volumes are on the rise, suggesting a lot of latecomers at the end of a rally.

Mr. Gartman tracks a compilation of 10 stock market indices around the world for trends, covering the U.S., Canada, Brazil, Europe and Asia. Rarely, he said, do all 10 of the markets fall at the same time, which is what has happened in the last few days.

"A 5.3 per cent decline in value in three sessions is not to be scoffed at, nor can it be merely tossed-off as a correction, for rarely have we seen all 10 markets that comprise our index fall by more than 1 per cent in unison," he said.

The signal means that "buying has been sated and that a prolonged market downward trend is only just beginning," he wrote. "At the moment, we fear that we are only now seeing the beginning of this selling; that the public has only just gotten long after remaining out; and that they'll not begin liquidating until prices are lower and their hopes have been dashed yet again."

Even if markets are on the edge of a major correction, Goldman Sachs Group Inc. thinks there is unique opportunity ahead in Chinese stocks.

In a new report, the investment bank forecast that Hong Kong's Hang Seng China Enterprises Index and China's CSI 300 Index (which tracks 300 stocks traded on the Shanghai and Shenzhen stock exchanges) will have risen about 30 per cent by the end of next year. It noted that $40-billion worth of new listings will hit the Shanghai market in that period, including China Mobile Ltd. - the world's largest wireless company - and national oil giant Cnooc Ltd.

Among Goldman Sachs' top picks in China are China Construction Bank Corp., Ping An Insurance Co., WuXi Pharmatech Cayman Inc. and Sina Corp.

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