Factory activity rose in China, the United States and Germany in January, and the three manufacturing superpowers drove gains in global output even as Europe struggles with fallout from its festering debt crisis.

But even as China defied expectations that its factory output would contract in January and German output improved for the first time in four months, the data released on Wednesday showed new signs of the threats from Europe's troubles.

New export orders fell in China, and manufacturing in France and several other European nations contracted.

There is an awful long way to go yet, and given the headwinds that these economies face I would be cautious about being too optimistic, said Peter Dixon at Commerzbank.

JPMorgan's global manufacturing index, based on surveys of purchasing managers around the world, improved to a reading of 51.2 in January from 50.5 in December. Readings above 50 indicated growth.

In China, the government's official purchasing managers Aindex (PMI) inched up to 50.5 in January from 50.3 in December, as new orders rose to a three-month high.

While China's growth provides the global economy with a needed boost, new export orders fell sharply in the Asian giant, underscoring the troubles in Europe that keep Asia's export-reliant countries vulnerable.

As external demand is now fading clearly, Chinese exporters are facing increasing difficulties, China's finance minister, Xie Xuren, said in remarks on Wednesday.

In Europe, Germany's gains propelled a rise in the Eurozone Manufacturing Purchasing Managers' Index, compiled by Markit, to 48.8 last month from 46.9 in December. But the index marked its sixth month in contraction territory, below the 50 mark.

In the United States, the manufacturing sector grew at its fastest pace in seven months in January as new orders improved.

The Institute for Supply Management (ISM) said its index of national factory activity rose to a reading of 54.1 from a revised 53.1 the month before, falling shy of expectations for 54.5.

Data from Britain was also upbeat, as the manufacturing sector unexpectedly grew in January. The PMI rose to 52.1 from 49.6, easily beating expectations for 50.0.

The euro and global equity markets surged as the U.S., Chinese and German manufacturing data drove investors' optimism on the path of the global economy.

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GRAPHIC on global PMI: http://link.reuters.com/byv24s

GRAPHIC on British PMI: http://link.reuters.com/tap74s

GRAPHIC on Asia PMI: http://link.reuters.com/maz35s

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ASIA WAVERING BUT STILL RELATIVELY STRONG

In Asia, the manufacturing sector's performance varied widely. India's factories posted their fastest growth in eight months in January. Unlike most of its Asian peers, India's economy is far less exposed to export demand.

India's PMI reading of 57.5 in January marked almost three years of expansion in the manufacturing sector and brought some cheer to an economy hurt by monetary policy tightening and the government's policy paralysis.

In South Korea, manufacturing sector activity and new export orders both shrank for a sixth straight month in January, the longest losing streak in three years. And in Taiwan, faltering exports bit into factory activity, which shrank for the eighth straight month.

South Korean exports posted a shocking 6.6 percent drop from a year earlier in January, far worse than the 0.7 percent consensus in a Reuters poll. Its exports to the European Union tumbled 45 percent in the first 20 days compared with the same period a year earlier.

Indeed, the euro zone is expected to be in recession during the first half of this year, according to a Reuters poll, but this assumes the region's debt crisis will not flare out of control.

Data showed on Wednesday that during the second half of 2011, Belgium became the first euro zone member not subject to a bailout program to fall into recession. Belgium is often cited as a harbinger of things to come in Europe.

Fears that Greece could face a disorderly default if it does not quickly secure a debt swap deal with private creditors, or that Portugal might require a second bailout, continue to rattle investors.

On Monday, most European Union states agreed to a German-led pact that will impose quasi-automatic sanctions on countries that breach EU budget deficit limits and will enshrine balanced budget rules in national law. That, however, will not solve euro zone countries' immediate borrowing troubles.

(Additional reporting by Leah Schnurr in New York and Anooja Debnath in Singapore; Editing by Leslie Adler)

(Corrects to show in 19th paragraph that Belgium was the first non-bailed out euro zone member to fall back into recession, not the first euro zone meber to fall into a recession)

Portugal Germany India South Korea