Global factories expand in Feb, some rates slower

Factories around the world enjoyed a bumper February with business surveys showing the manufacturing sector in major economies continued to lead an economic recovery, despite a slowdown in some growth rates.

Factory activity expanded across Asia last month, although powerhouse China showed some signs of weakening, while in Europe growth rates hit 30-month highs despite contraction in laggards Spain and Greece.

A U.S. industry report showed the nation's manufacturing sector grew in February. Even though the expansion was at a slower rate than expected, analysts saw the gains as a sign the economic recovery was on track.

There is a sense that the Asian upswing may have run into the sand slightly but it was coming from a very strong base so it was anticipated we would see some slowdown. European numbers continue to show more dynamism, said Peter Dixon, economist at Commerzbank.

Manufacturing in the euro zone grew slightly faster than previously thought, with Markit's Purchasing Managers' Index for the region jumping to 54.2 in February from 52.4 the month before. But the Spanish and Greek indexes remained below the 50 mark that is the divide between growth and contraction.

For the United States, the Institute for Supply Management said national factory activity expanded at a slower rate, with its index declining to 56.5 in February from 58.4 in January. Growth was slightly below economists' expectations for a reading of 57.5, according to a Reuters survey. A reading above 50 indicates expansion.

Among more bullish factors in the U.S. report was a rise om the employment index.

The employment indicator may be signaling that job cuts were overdone broadly and the labor market will shortly start improving, said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI in Arlington, Virginia.

It was something of a mixed bag in Asia where factory activity in the main economies expanded, with India and South Korea growing at their fastest pace in around two years. But a pair of surveys showed the pace of manufacturing growth in China, the world's third biggest economy, eased slightly.

Policy makers are driving with low visibility on the Chinese activity data at the moment, said Brian Jackson, a strategist with Royal Bank of Canada, adding that the timing of the Chinese New Year holidays complicated interpretation of data.

So it would be premature to conclude that today's fall in the headline PMI numbers show a broader easing in the momentum of China's recovery.

The UK saw growth levels matching January's 15-year high of 56.6.

Swedish data surprised markets earlier on Monday, as its economy unexpectedly slid back into recession in the fourth quarter of 2009.

CURRENCIES COUNT

The euro was little moved after the U.S. and European data but the Australian dollar dipped and copper prices pared gains after Asia's releases, which markets took as a sign that Chinese demand for metals and commodities might soften.

Exports in the euro zone grew at their fastest rate in three years last month, boosted by a fall in the euro to near nine-month lows on worries over heavily indebted smaller euro zone countries such as Greece and Portugal.

The strength in the manufacturing sector reflects a surge in exports, said Nick Kounis at Fortis Bank.

Price pressures were also building in Asia and Europe with input prices at 17-month highs in the euro zone, but a negative reading for output prices shows firms are still having to discount goods to boost sales.

The PMI derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS) fell to 52.0 in February, well below the median forecast of 55.45 in a Reuters poll and down from 55.8 in January.

A separate survey conducted by research firm Markit for HSBC showed the China PMI dipping to 55.8 from a record high of 57.4 in January.

India's PMI rose to 58.5 in February, its strongest reading since June 2008, from 57.7 in January, as output and new orders expanded.

The headline index is consistent with ongoing double-digit gains in industrial production, which in turn is likely to mean that spare capacity is being eaten into rapidly, said Robert Prior-Wandesforde, senior Asian economist at HSBC.

South Korea's headline PMI rose to the highest level since December 2007 at 58.2.

(Additional reporting by Anurag Joshi in Mumbai, Yoo Choonsik in Seoul, Caroline Valetkevitch in New York and Lucia Mutikani in Washington; Editing by Leslie Adler)