The US Federal Reserve tonight said there were signs that the economy was stabilising after Goldman Sachs reported a 20% jump in profits.

Fed chairman Ben Bernanke said: “Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding and consumer spending, including sales of new motor vehicles.”

His remarks followed hot on the heels of better-than-expected results from Goldman which led to some investors to call the end of the banking crisis which has afflicted the industry for almost two years.

Financial stocks rallied in London with Lloyds Banking Group up 10%, Barclays up nearly 8% and Royal Bank of Scotland 1p higher at 30p.

But dismal retail sales figures from America overshadowed the news and stock markets around the world gave up gains from earlier in the day.

Retail sales fell 1.1% during March in contrast to expectations of a 0.3% increase. The unexpected drop renewed concerns about the state of the world's largest economy.

The FTSE 100 was down 9.84 to 3973.87 having reached 4039.67 in early trading while the Dow Jones Industrial Average was off 25.57 to 8057.81 in New York.

Goldman figures showed profits in the first three months of 2009 up 20% on the same period last year, from $1.51 billion to $1.81 billion (£1.22 billion). However, they were partly flattered by a shift in year-end which saw December's losses of $1.3 billion excluded from the latest figures.

In a move which could signal a return to bonuses sooner than expected, Goldman also said it will raise $5 billion through a new share offer on the New York stock market. This would mean it could pay back half the $10 billion it received last year under the US Troubled Assets Relief Programme (Tarp).

Once it paid back the other $5 billion, Goldman would be released from undertakings to restrict bankers' pay and bonuses it had to give the US government in return for the bailout. Chief executive Lloyd Blankfein has been a strong advocate of repaying the state aid and resuming bonus payments. He is reported to have told President Obama at a meeting in late March that the cap would “limit our ability to compete, both here and abroad.”

Analysts said that Goldman's decision to repay the Tarp money would increase pressure on rivals such as JP Morgan and Citibank which are due to report first-quarter earnings later this week.