(Reuters) - It's too early to call the end of the euro zone crisis, but signs are growing that Europe may have turned a corner in its struggle to restore financial stability.

French Economy Minister Christine Lagarde, mangling a treasured Winston Churchill quotation, said last week: "We are in the middle of the beginning of the end."

More prudently, we may be seeing "the end of the beginning."

The evidence comes partly from financial markets, which are calmer, partly from the real economy, which is perkier, and partly from policy, which is responding at last to at least some investor concerns.

There are still plenty of risks -- lack of faith in planned stress tests of European banks; low or no economic growth; more credit rating agency downgrades of sovereign debt; an eventual Greek default or debt restructuring; weaknesses in euro zone governance; and political resistance to painful reforms.

But on balance, things are starting to look up.

July 12 (Bloomberg) -- Bank of America Corp. and Wall Street firms that notched perfect trading records in the first quarter are now depending on an accounting benefit last used in the depths of the credit crisis to prop up their results.

Bank of America, the biggest U.S. bank by assets, may record a $1 billion second-quarter gain from writing down its debts to their market value, Citigroup Inc. analyst Keith Horowitz estimated in a June 23 report. The boost to earnings, stemming from an accounting rule that allows banks to book profits when the value of their own bonds falls, probably represented a fifth of pretax income, Horowitz wrote.

Investor fears of a Greek default, stalled U.S. economic recovery and tougher industry regulations have rattled markets, snapping banks' trading streaks and rekindling doubts about their creditworthiness. Prices for Bank of America's credit derivatives -- used by traders to bet on the likelihood of the firm's default -- rose by 34 percent during the second quarter, while Morgan Stanley's doubled and Goldman Sachs Group Inc.'s surged 86 percent.

The deepest recession in Britain's post-war history was even more severe than previously feared, the government said today.

Fresh information collected by the Office for National Statistics showed that the peak to trough decline in output was 6.4% of gross domestic product rather than the original 6.2% estimate.

The new figures confirmed that the six successive quarters of negative growth from spring 2008 until autumn 2009 were the toughest for the economy since the Great Depression of the 1930s, harsher even than the slump of the early 1980s.

The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.

The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.

Their concern is that banks hungry for refinancing will compete with governments -- which also must roll over huge sums -- for the bond market's favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
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Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.

Alessandro Profumo, UniCredit's chief executive, has received lukewarm reactions from other European banks to his proposal for a €20bn privately financed fund to support cross-border banks in distress. The continent's bankers are presumably more warmly united around the main purpose such a fund would serve - to dam a rising tide in favour of a bank levy.

Some of the mixed feelings about Mr Profumo's idea, floated in an FT comment article yesterday, can be put down to confusion about exactly what the proposal entails. He explicitly says it is not a resolution or bail-out fund intended to cover the losses of insolvent banks. The idea, rather, seems to be for Europe's cross-border banks to voluntarily pay into a fund that, if wholesale markets were to freeze up as they have done in this crisis, would carry solvent banks through their dire straits until they could again raise funding in the markets.

China, the world's largest foreign exchange holder, bought several hundred million euros of Spanish bonds last week as Asian investors returned to the eurozone peripheral market after a two-month hiatus.

China's State Administration of Foreign Exchange, or Safe, which manages the reserves under the country's central bank, was allocated up to €400m ($505m) of Spanish 10-year bonds in a debt deal last Tuesday, according to people familiar with the situation.

Safe had put in an order for about €1bn after demand rose to €14.5bn in a matter of a few hours last Tuesday. Mike Amey, portfolio manager at Pimco, said: "The fact big Asian investors are back in the market is a big vote of confidence for the eurozone. There was strong demand for the Spanish bond. It really helped sentiment."

BEIJING (AP) -- A Chinese firm that aims to compete with Western rating agencies declared Washington a worse credit risk than Beijing in its first report on government debt Sunday amid efforts by China to boost its influence in global markets.

Dagong International Credit Rating Co.'s verdict was a break with Moody's, Standard & Poors and Fitch, which say U.S. government debt is the world's safest. Dagong said it rated Washington below China and 11 other countries such as Switzerland and Australia due to high debt and slow growth. It warned the U.S. is among countries that might face rising borrowing costs and risks of default.

The report comes amid complaints by Beijing that Western rating agencies fail to give China full credit for its economic strength, boosting borrowing costs -- a criticism echoed by some foreign analysts. At June's G-20 summit in Toronto, President Hu Jintao called for the creation of a more accurate system.

Dagong, founded in 1994 to rate Chinese corporate debt, says it is privately owned and pledges to make its judgments impartially. But in a sign of official support, its announcement Sunday took place at the headquarters of the Xinhua News Agency, the ruling Communist Party's main propaganda outlet.

Dagong's chairman, Guan Jianzhong, said the current Western-led rating system is to blame for the global crisis and Europe's debt woes. He said it "provides the wrong credit-rating information" and fails to reflect changing conditions.

Jesse has a bit to say about this, including:

Governments like China do not take actions like this randomly, and their quasi-state organizations do not march to the beat of their own drummer. It will be interesting to watch this develop, and calculate the strategy, to figure out the next steps.

From a thematic perspective, coming up, competitive devaluations, and a shift in the reserve currency regime that will resemble a seismic shift, most likely pivoting around the SDR composition discussions later this year.

The US battered the euro and has been sitting on gold and silver ahead of the SDR discussions. And now China has slipped a shiv between the ribs of the almighty Dollar. This is just the overture, the prelude to the dance.

And further down the road, trade wars, well, at least trade wars more overt than the ones which have been ongoing since 1980, in which the US based multinationals thought they were pulling the strings, breaking the back of American labor.

And guess who the arms dealers are in this paper chase, selling to all sides? Who are the untouchables, the TBTF, a strategic asset in the financial arsenal of democracy? When these boys roll into town it's time to hide the women, children, livestock and provender.

The world needs more than three major credit ratings agencies because their actions exacerbate market swings, European Central Bank President Jean-Claude Trichet was quoted on Tuesday as saying.

"The ratings agencies in general tend to amplify rises and falls in financial markets. You can see it still today very visibly. That goes against financial stability," he said in an interview with French daily Liberation.

"It is probably appropriate not to continue to have a worldwide oligopoly of three agencies. But the underlying issue is to attenuate or cancel out this amplification to which the rating agencies contribute."