* BOJ extends business funding, but only for 3 mths
* PBOC makes small move to tighten policy
* Stocks rise for third day on strong U.S. results
* Outlook for Europe less assured, euro zone prices fall
* UK jobless at highest since January 1997
By Hideyuki Sano
TOKYO, July 15 (Reuters) - Japan and China's central banks on Wednesday flagged the need to rein in emergency stimulus for the economy, concerned to keep a fragile recovery on track without stoking future inflation of prices.
The Bank of Japan extended its crisis funding support for businesses for another three months, but Governor Masaaki Shirakawa said improvements in markets had led it to stop short of a six-month extension into the new year.
China's central bank signalled its concern over a jump in the amount of money coursing through the economy -- taking the latest in a series of small steps to tighten policy by telling banks they would be required to buy special bills in September.
That contrasts with Europe and the United States where authorities are still debating whether the massive stimulus provided by central banks and governments is working, and in some cases, how and whether it needs to be extended.
Despite signs that Britain's recession may have bottomed out, unemployment hit its highest point since January 1997 in the three months to May, data showed.
"Financial conditions are improving as a trend. But at present, we decided it was appropriate to maintain the steps," Japan's Shirakawa told a news conference.
"If conditions improve further, it might be appropriate to end or review the various steps at the end of the year."
Stock markets rose for a third day, boosted by strong earnings on Tuesday from Intel Corp and Goldman Sachs. But they remained nervous over results for other leading U.S. banks later in the week.
Hennes & Mauritz, the world's third-biggest clothing retailer on Wednesday reported a bigger than expected 5 percent year-on-year fall in sales at stores in June, suggesting fears over jobs are crimping consumer spending.
OUTLOOK SPLIT
Financial markets are still far from convinced that the West's economies are on a firm path to recovery from the deepest recession in decades, but the outlook in Asia is more upbeat.
A Reuters poll of economists suggested China was on track to reach its 8 percent target for growth this year, while Asia's worst hit economies Singapore and Taiwan would see a sharp turnaround next year as the continent rebounds.
"We have already seen a fair bit of buying into risk over the past few weeks and people are feeling a bit better about the economy," said Chris Kimber, client adviser at Bell Potter Securities in Australia.
The picture from data in Europe and the United States has been mixed this week, with the ZEW indicator of confidence in the German economy well below expectations on Tuesday. Markets will look to U.S. inflation numbers for further signs on performance on Wednesday.
A steep drop in fuel costs drove down euro zone consumer prices for the first time year-on-year in June.
In Britain, although data showed unemployment was still on the increase, the number of people signing on to claim jobless benefit rose by much less than expected last month.
Many hopes for a global revival have centred on China, where lavish government stimulus spending appears to be having the desired effect on an economy clobbered by a drop-off in trade as the developed world slid into recession last year.
Annual growth in China's broad M2 measure of money supply surged in June on the back of breakneck bank lending ordered by Beijing to pump up the world's third-largest economy.
And in a sign that money is flowing back into China in anticipation that those stimulus efforts will succeed, the central bank's foreign exchange reserves leapt by $177.9 billion in the second quarter to $2.13 trillion.
"We think a gradual policy tightening (by the central bank) at an early stage would be a positive move," said Hong Kong-based Goldman Sachs economists Yu Song and Helen Qiao in a research note.
BEATING FORECASTS
Intel reported quarterly earnings of 18 cents a share, far exceeding forecasts of 8 cents a share, and also gave an outlook that blew past forecasts.
Asian tech shares jumped in response on Wednesday, with Samsung Electronics, the world's top maker of memory chips and flat screen TVs, rising more than 5 percent. European shares rose 1.2 percent in early trade.
Goldman's results also showed an extraordinary turnaround from the near meltdown in the U.S. banking sector in the wake of the Lehman Brothers collapse in September, which helped tip the economy into its deepest slump since the 1930s.
But those results are not necessarily a preview of what to expect from all the banks, said Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management, in Paris.
"We're in the process of making the distinction between the winners and the losers. Goldman is one of the winners, but other banks are still struggling," she said. (Writing by Patrick Graham; Editing by Jon Boyle)