Regional economic reports on Monday suggested the U.S. economy has clambered back to levels associated with the end of recession, but recovery will be patchy and may prove fleeting.

Economic activity and manufacturing data for the U.S. Mid West and Texas hinted the impact of the global financial crisis is slowly abating as the economy emerges from the longest recession in 70 years.

However, an index of national economic activity slipped on a monthly basis and a Texas manufacturing output index fell.

Those kind of reports tend to support the argument that this recovery will be more uneven and less V-shaped, but with the caveat that these are somewhat narrow regional surveys, said Kevin Flanagan, fixed-income strategist for global wealth management with Morgan Stanley in Purchase, New York.

The indices preceded gross domestic product results on Thursday, the broadest measure of economic health, likely to confirm widely-held views the United States returned to growth in the third quarter. The data is a key focus in markets.

This week, the most important report is Thursday's GDP release...which is expected to show one of the more robust readings we have seen in the last few years and will give rise to the notion statistically speaking that the Great Recession has ended, Flanagan said.

According to the median forecast of economists polled by Reuters, the U.S. economy grew 3.3 percent in the third quarter after shrinking 0.7 percent in the second quarter.

Market participants will also be watching to see if the Federal Reserve changes its language on quantitative easing measures and future interest rate decisions in response to the shifting economic conditions at the central bank's two day, Nov 3-4 policy-setting meeting next week .

Monday's Chicago Federal Reserve report showed its three month moving average of economic activity has neared levels seen at the end of previous recessions.

The average, which smoothes out monthly volatility, firmed to minus 0.63 in September from August's revised figure of minus 0.96, previously reported at minus 1.09.

The Chicago Fed said in the past four recessions, the three-month average's rise back above minus 0.70 has coincided closely with the end of the recession.

Yet other data showed the manufacturing rebound is patchy and uneven.

The Chicago Fed said its Midwest Manufacturing Index rose in September, as auto sector production rebounded.

However, vehicle making may decline as the effect of the government's recently ended cash-for-clunkers buying incentive program fades, some analysts expect.

The index rose to a seasonally adjusted 82.3 in September from a revised 81.6 in August. However, compared with a year earlier, Midwest output was down 15.7 percent, steeper than the 7.2-percent national decline.

The Dallas Federal Reserve's Texas manufacturing output index fell to a reading of minus 8.0 in October from minus 0.5 in September.

Some more indications that the housing market may be temporarily forming a bottom are expected on Tuesday, with the release of Case/Shiller home price data. However, economists worry that a tax incentive for first-time home buyers has been a major factor spurring sales and that its expiry next month may lead to a second leg down in housing's more than three year decline.

(Reporting by John Parry; Editing by Andrew Hay)

New York Morgan Stanley