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Chinese factories grow again, but U.S. sector shrinks

People walk at the China World Trade Center in Beijing's central business district, November 29, 2012. REUTERS/Jason Lee
People walk at the China World Trade Center in Beijing's central business district, November 29, 2012. REUTERS/Jason Lee

By Steven C. Johnson and Andy Bruce

NEW YORK/LONDON (Reuters) - Chinese manufacturing output grew last month for the first time in more than a year but a surprise contraction in U.S. factory activity tempered optimism about the health of the world economy on Monday.

Business surveys also showed the euro zone's manufacturing sector shrank for a 16th straight month, though a little less rapidly than in October.

A rise in HSBC's China manufacturing PMI to 50.5 in November, its first time above the 50-point growth threshold in 13 months, suggested the world's second-biggest economy may be heading into 2013 with more momentum after struggling this year.

The expansion in Chinese factory activity should provide a boost for world growth, particularly since recovery in the debt-strapped euro zone still appears a long way off.

Yet the outlook elsewhere in Asia, including India and South Korea, was less encouraging. And in the United States, manufacturing shrank in November, turning in its worst showing in more than three years.

"The overall picture is certainly one of a weak global economy," said Joshua Shapiro, chief U.S. economist at MFR, a global consulting firm. "U.S. manufacturing is suffering from weak domestic demand and soft exports. Europe is weakening clearly, Japan is going nowhere, and I don't know what to make of the wiggles in Chinese economic data."

The U.S. Institute for Supply Management said its index of factory activity fell to 49.5 from 51.7.

That added to worries about the world's largest economy, particularly ahead of a possible budget crisis over tax and spending policy at year end.

"The manufacturing sector appears to be moving sideways. We haven't seen much growth in the business sector for the last six months now," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. "That doesn't bode well (for growth) going forward."

A separate report from information firm Markit painted a different picture of U.S. manufacturing, with the sector growing at its quickest pace in six months, though firms said that was in part due to an increase in demand following superstorm Sandy, which hit the east coast in late October.

In Canada, the pace of manufacturing growth slowed for a fifth consecutive month, which analysts said reflects uncertainty about the world economy.

The pace of growth in Mexican manufacturing rose in November, driven by a jump in new orders.

CHINA TAKES THE LEAD?

The big emerging economies that have contributed most to global growth recently have struggled of late, with India's economy expected to grow at its weakest rate in a decade.

Brazil logged an unexpectedly weak third quarter, though manufacturing expanded last month at the quickest clip in nearly two years, suggesting a gradual turnaround.

That has left investors once again hoping China will take up the slack, after seven straight quarters of slowing growth.

"There is growing confidence that China's economy bottomed in July-September, with signs of firmer external demand," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

China's rebound helped push JP Morgan's Global Manufacturing PMI to 49.7 last month from 48.8 in October.

But some said the global significance of China's data was unclear. "They're not a pointer necessarily that the rest of the global economy is recovering," said Philip Shaw, chief economist at Investec in London. "We suspect there is an element of domestically driven growth coming through in the numbers there."

Aside from China, the outlook for other major Asian economies looks uncertain, especially because easy monetary policy in the developed world has pushed up the value of currencies in the likes of Korea and Taiwan, hurting exports.

Manufacturing continued to contract in both countries last month, while India's factory sector expansion remained well below the rate seen in the years before the global financial crisis.

EUROPE'S STRUGGLES PERSIST

Markit's Eurozone manufacturing PMI rose to 46.2 in November from October's 45.4, though it stayed below the 50 mark dividing growth from contraction for a 16th straight month.

While the decline among the euro zone's embattled factories eased in November, the latest PMIs showed the economy is on course for its worst quarter since the depths of early 2009.

"With official data lagging the PMI, the rate of GDP decline is likely to have gathered pace markedly on the surprisingly modest 0.1 percent decline seen in the third quarter," said Chris Williamson, chief economist from survey compiler Markit.

British manufacturing activity shrank less than expected in November, but the sector remained fragile as orders edged down, a survey found on Monday.

(Additional reporting by Lucy Hornby; Editing by Jeremy Gaunt, Clive McKeef, James Dalgleish and Chizu Nomiyama)

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