Several major countries have moved out of recession this year and markets have rallied on signs the world economy was recovering more quickly than expected from the worst recession since the 1930s.

But many companies have yet to start investing in new production or people, with manufacturers cutting costs and banks relying on rising markets to boost their bottom lines.

"We have seen a remarkable stabilisation around the world in recent months," European Central Bank governing council member Axel Weber said in the text of a speech to be given at the Israeli Presidential Conference.

"(But) forecast risks are still elevated, and there is no reason to be overly optimistic given the fragility of the recovery."

Early signs from third-quarter U.S. company results had been encouraging. At the end of last week, when 10 percent of S&P 500 Index firms had reported, some 82 percent had beaten forecasts, according to Thomson Reuters Proprietary Research.

Results this week, however, have been more mixed, with online marketplace eBay and aircraft maker Boeing disappointing investors.

Of the 27 Stoxx600 European companies that have reported third-quarter earnings so far, 15 have beaten expectations while 12 have fallen short, according to the Thomson Reuters data.

Ericsson , the world's biggest maker of telecoms network equipment, reported falling sales and lower-than-expected core earnings on Thursday, showing that the recession still has some bite.

Many companies that have beaten forecasts have also relied on cost cutting rather than increased demand.

"The clear improvement in earnings ... was not achieved through market recovery," said European paper and board maker Stora Enso as it topped quarterly earnings forecasts. "It was significantly due to our own actions."

Confectioner Cadbury , a takeover target for U.S. rival Kraft , on Wednesday raised its growth forecast for profit margins in part by cutting marketing spend as a percentage of sales.

"Top-line growth hasn't been as good as some people were hoping and that's cast some doubts over the recovery," said Franz Wenzel, strategist at AXA Investment Managers.

END OF THE "RECOVERY TRADE"

Policymakers had hoped China would lead the world out of recession, but an increase in third quarter growth figures to 8.9 percent year-on-year failed to cheer investors.

The government also said it would stick to the ultra-loose policies it has been following for the past year, signalling the recovery needs time to take hold.

In France, business confidence rose to the highest level in a year in October, but the figures were below their long-term average.

And in Britain, retail sales were flat in September for the second month in a row, confounding expectations of a 0.5 percent rise.

"The fact that consumers seem not to be putting their money where their mouth is also casts some added doubt over the strength of the nascent recovery" said Richard McGuire, an analyst at RBC Capital Markets.

British retail billionaire Philip Green, owner of retail group Arcadia, said stock markets had got ahead of themselves.

"I think it's going to be hard work ahead, a hard slog," he told Reuters in an interview, pointing to the likelihood that taxes and unemployment will rise next year.

World stocks as measured by MSCI , which have rallied around 75 percent since March on hopes of a rapid recovery, were down 0.7 percent by 12:50 p.m.

Valentijn van Nieuwenhuijzen, head of fixed income strategy and economics at ING Investment Management, said the time for buying a broad range of assets as a "recovery play" had passed and investors now need to be more selective.

"The remainder of 2009 and 2010 will be characterised by divergence. In particular, those countries which have seen only a mild slowdown, a relatively vigorous pick-up and only a muted fall in inflation are likely to start tightening monetary policy sooner rather than later," he said, pointing to the tightening which has already taken place in Australia and Israel.

He expects policy to remain on hold in the United States and Europe "for the foreseeable future as disinflationary forces are expected to intensify."

(Editing by Elizabeth Piper)