Wall St had its best session for months overnight as comment from the Fed and some official figures fed a renewed feeling of optimism that the end of this crippling recession might be might in sight.

Of course, in its usual fashion, the Street ignored what lies ahead for the world’s biggest economy, especially the possible collapse tomorrow of a big business finance lender. But thanks to comments in the minutes of the last Federal Reserve Open Markets Committee meeting, and better than expected industrial production figures, the markets celebrated, rising 3%. Oil rose back over $US61 a barrel, US interest rates rose as bonds were sold off and the dollar fell.

Helping the mood was a bullish quarterly report from Intel, the big computer chip maker, although smarter investors saw strong signs of stock rebuilding in the the company’s outlook and rise in profits and sales for the next six month.

But the joy of rediscovering the upside will be tempered tonight when we learn the fate of business finance group, CIT. Its shares were suspended yesterday pending an announcement of help from the US Government. Now it seems, according to the company’s own media advice, that help won’t be forthcoming.

“There is no appreciable likelihood of additional government support being provided over the near term,” the company said in the statement. “The CIT board and executives are evaluating alternatives.”

That means the company could very well file for bankruptcy protection Thursday, US time. If it does it will be the biggest financial collapse since Washington Mutual failed last year. CIT has some $US75 billion in assets, according to figures at the end of March. It has lost $US3.3 billion over the past year or so and has struggled to renew financing lines in recent months and had been looking for help from the US Government to guarantee a refunding.

CIT’s immediate outlook will be known the same day as banking giant JPMorgan reports what is expected to be a solid result, but with big losses from credit cards, mortgages and business loans. Friday then sees reports from the two basket cases of US banking, Bank of America and Citigroup.

The bullishness of the past three days will take a hit if CIT fails and JPMorgan and the other banks report below par results.

It will overshadow what was “good news” from the Fed: it saw unemployment peaking at 10.1% later this year, (its now 9.5%) and the board members said they believe the end of the recession could be in sight.

According to the minutes of the June 24 meeting, members of the Fed’s rate-setting committee agreed that “the decline in [economic] activity could cease before long.”

“Almost all participants viewed the near-term outlook for domestic output as having improved modestly relative to the projections they made at the time of the April FOMC meeting, reflecting both a slightly less severe contraction in the first half of 2009 and a moderately stronger, but still sluggish, recovery in the second half,” the document said.

The Fed said its staff economists also raised their outlook based on recent data even though the rate of unemployment was higher than expected.

“In the forecast prepared for the June meeting, the staff revised upward its outlook for economic activity during the remainder of 2009 and for 2010. Consumer spending appeared to have stabilized since the start of the year, sales and starts of new homes were flattening out, and the recent declines in capital spending did not look as severe as those that had occurred around the turn of the year.

“Moreover, it seemed likely that economic activity was in the process of leveling out, and the considerable improvements in financial markets over recent months were likely to lend further support to aggregate demand.”

The Fed also raised its forecast for unemployment, saying the jobless rate would peak this year in a range of 9.8% 10.1%, compared with its April forecast of 9.2% to 9.6%.

Fed policymakers believe that after peaking, unemployment will fall slowly next year as the hesitant recovery in the economy emerges.

The Fed also issued a slightly more optimistic forecast for the economy saying gross domestic product, (GDP), should contract by between 1% and 1.5% in 2009, compared to an earlier forecast of a fall of between 1.3% to 2%.

The forecasts for GDP growth in 2010 and 2011 were lifted: to between 2.1% and 3.3% for 2010 and growth of 3.8% to 4.6% in 2011.

The Fed’s minutes were released after it issued the industrial production figures for June: output fell by a smaller-than-expected 0.4% last month. For the second quarter as a whole, output fell at an annual rate of 11.6% down sharply from the 19.1% fall in the first quarter of this year.

And inflation is not a problem: down including volatile petrol and food, up when that’s excluded.