But a sharp drop in U.S. consumer spending indicated recovery would still be a hard slog and Japan had earlier unveiled a record deflation figure, clouding the outlook just as stock markets racked up their best performance in months.
Faced with the specter of a 1930s style-depression after credit and housing markets imploded last year, governments and central banks have pumped trillions of dollars of stimulus into the world economy.
The strategy seems to have worked, with evidence activity is picking up after a sharp contraction, but doubts remain whether the fragile recovery can continue on its own.
Wall Street investors reacted cautiously, but positively to the latest U.S. GDP data, betting the downturn was easing.
The United States' gross domestic product, which measures total goods and services output within U.S. borders, fell at a 1.0 percent annual rate, the Commerce Department said, after tumbling 6.4 percent in the January-March quarter, the biggest decline since a matching fall in the first quarter of 1982. It was previously reported as a 5.5 percent drop.
U.S. stocks edged higher, but trading was volatile after the government report also showed a drop in consumer spending, a crucial driver of corporate profits and economic activity.
"Overall, the numbers weren't as bad as what the headlines showed and once you start going through the numbers, we're headed in the right direction," said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio.
"The worrisome factor is the consumer and what a big part of our economy the consumer is, and we don't see any kind of rebound there."
In Europe, stocks closed lower on Friday on the U.S. economic data, but rose for the third straight week, as investors continued to view most earnings in the current season positively.
The FTSEurofirst 300 index of top European shares fell 0.2 percent to a provisional close of 928.90 points. Over the week the index gained 2.4 percent and it rose 9.3 percent in the month of July.
With the contraction in the second quarter, U.S. GDP has fallen for four straight quarters for the first time since government records started in 1947.
The International Monetary Fund (IMF) said in a report the sharp contraction in the U.S. economy "seems to be ending," but recovery will be slow with risks still looming from the weak labor and housing markets.
Consumer spending, which accounts for over two-thirds of U.S. economic activity, fell at a 1.2 percent rate in the second quarter after rising 0.6 percent in the previous quarter. That sliced 0.88 percentage points from second quarter GDP, the Commerce Department said.
Deflation Fears
In a sign the recession was still squeezing Europe, unemployment in the euro zone rose to a 10-year high of 9.4 percent in June, but increased less than expected following government measures to combat the economic crisis.
The European Union's statistics office also said on Friday that inflation had moved much further into negative territory than forecast in July, with consumer prices falling 0.6 percent. This raised the possibility of deflation and heightened expectations the European Central Bank will maintain its loose monetary policy.
The jobless rate for the 16 countries that use the euro currency rose from May's downwardly revised 9.3 percent as 158,000 people lost their jobs, Eurostat said. With the preliminary reading of May unemployment at 9.5 percent, economists had expected June's figure to be 9.7 percent, but the number was still the highest since June 1999.
"Unemployment would have been much higher still if not for the short-time working schemes and related measures adopted in euro zone countries," said Martin Van Vliet, an economist at ING.
Asian Stocks Poised for Gains
Earlier, Japan had reported a record deflation figure, complicating the outlook for global recovery.
The Nikkei index rose to its highest close in 10 months, but the fall of 1.7 percent in core consumer prices for the year to June stoked investor foreboding over consumer demand in the world's second-biggest economy as job losses grow and wages fall.
In Asia, stocks appeared poised for double-digit gains in July as investor funds poured in on bets the region's growth engine would lead the global economy out of recession.
"Earnings for the April-June quarter have been stronger than expected and there has been a fair number of upward forecast revisions, all of which is improving sentiment and keeping the market supported," said Yumi Nishimura, deputy general manager in the investment advisory section at Daiwa Securities SMBC in Tokyo.
