Oct. 29 (Bloomberg) -- European factories increased capacity usage on assembly lines for the first time in two years this quarter as confidence in the economic outlook rose to the highest since Lehman Brothers Holdings Inc. collapsed.

Assembly-line activity in the euro area rose to 70.7 percent of capacity this quarter from 69.6 percent in the prior three months, the European Commission in Brussels said today. An index of executive and consumer sentiment jumped to 86.2, the highest since September 2008, when Lehman filed the biggest bankruptcy in U.S. history, compounding the financial crisis.

Today’s data add to evidence that the global economy is emerging from the recession, which has been the deepest in six decades. European manufacturing expanded for the first time in 17 months in October, while earnings of companies including Fiat SpA and ASML Holding NV have beat analysts’ estimates. The U.S. economy, the world’s largest, expanded in the third quarter for the first time in more than a year, data showed today.

“We may now have reached a turning point” for Europe’s economy, said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “But even if spare capacity does now start to shrink, we’ve got a long way to go before it gets back to normal.”

The increase in capacity usage at euro-area factories was the first since the second quarter of 2007 and brought the gauge up from the lowest since the data were first collected in 1990, the commission’s report showed. The gain in economic confidence was the seventh in a row.

‘Significant Improvement’

While companies “are clearly more positive in their appraisal of order books and the level of stocks, it was the much more optimistic production expectations that really lifted sentiment,” the commission said. “Survey participants reported significant improvement in new orders received in the past three months, and more favorable expectations about export orders in the next three months.”

The euro-area economy may expand 0.1 percent in the current quarter after growth of 0.2 percent in the three months through September, the commission forecast on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.

“The fall that gripped our economies between the end of 2008 and the beginning of this year has stopped,” European Central Bank council member Mario Draghi said today in Rome. “We are less sure that a lasting recovery, which does not depend only on extraordinary economic policies, is actually under way.”

‘Rather Uneven’

The ECB has cut its key interest rate to a record low of 1 percent and started purchasing covered bonds to stimulate bank lending and boost investments and consumption, while euro-area governments have committed billions of euros to fight the recession. ECB President Jean-Claude Trichet said on Oct. 9 that it is “not the time to exit yet” with the economy expected to show a “rather uneven” recovery.

Fiat, the Italian carmaker that acquired a stake in Chrysler Group LLC, last week stuck to its full-year earnings target, forecasting business will improve in the rest of 2009 after unexpectedly reporting a third-quarter profit. ASML, Europe’s biggest producer of semiconductor equipment, reported its first profit in four quarters and joined Intel Corp. in signaling a revival of demand in the chip industry.

ECB policy makers including Trichet have warned the recovery may face obstacles such as rising unemployment. The euro-area jobless rate already is at a 10-year high of 9.6 percent and the International Monetary Fund forecasts it will reach 11.7 percent in 2010, higher than in the U.S. or the U.K.

Euro-Area Exports

At the same time, the euro has gained 14 percent against the dollar in the past year, making the region’s goods less competitive abroad. The European currency, which reached a 14- month high above $1.50 last week, traded around $1.4750 today.

Euro-area exports to the U.S., the region’s second-largest trading partner after the U.K., dropped 20 percent in the first seven months of 2009. The U.S. economy expanded at a 3.5 percent annual pace in the third quarter, exceeding the median estimate of economists surveyed by Bloomberg News, after shrinking in the previous four quarters, figures from the Commerce Department in Washington showed today.

Consumers in Europe have boosted their savings while curtailing investment to weather the recession. The euro-area household savings rate increased to 16.5 percent in the second quarter from 16 percent in the previous three months, the European Union statistics office in Luxembourg said today. That was the highest rate since the data were first collated in 1999.

The household investment rate decreased to 9 percent from 9.3 percent in the first quarter, reaching the lowest since the data series started 10 years ago, the statistics office said.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net

Last Updated: October 29, 2009 11:04 EDT