GLOBAL ECONOMY-U.S., euro zone activity up; China decline slows

Wed Apr 23, 2014 8:06pm IST

(Adds U.S. factory activity data, New York dateline)
* Chinese factory activity shrank again in April
* Euro zone businesses enjoy best month in nearly three years
* Deflation fears remain in euro zone

By Rodrigo Campos and Jonathan Cable

NEW YORK/LONDON April 23 (Reuters) - The U.S. manufacturing sector expanded in April and the euro zone private sector started the second quarter on its strongest footing since 2011, while the pace of decline in Chinese factory activity slowed, surveys showed on Wednesday.

Factory activity continued to expand in the world's largest economy,
but the pace of growth stalled and came in below expectations. However, output growth hit its fastest in three years.

Financial data firm Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Managers Index dipped to 55.4 in April from 55.5 in March. Economists polled by Reuters expected a reading of 56.0.

"The headline number is not bad. It's still above the 50 neutral threshold. The improvement is encouraging," said Ryan Sweet, senior economist with Moody's Analytics in West Chester, Pennsylvania.

"With this report, it suggests the manufacturing is gaining more orders and has bounced back from the bad winter weather. Manufacturers are playing catching up."

The data highlights expectations for a strong second quarter after the first one saw colder-than-average temperatures and massive snowstorms weigh on U.S. economic activity.

Earlier on Wednesday, data showed China's HSBC/Markit flash PMI for April rose to 48.3 from March's final reading of 48.0, but was still below the 50 line separating expansion from contraction.

"It's generally in line (with expectations), reflecting that growth momentum is stabilizing," said Zhou Hao, China economist at ANZ in Shanghai.

Analysts see initial signs of stabilization in the world's second-largest economy due to the government's targeted measures to underpin growth, but believe more policy support may be needed as structural reforms put additional pressures on activity.

"The long slide in China that we have seen in recent months might have turned a corner," said Peter Dixon at Commerzbank.

Growth in the euro zone was again led by Germany, the bloc's largest economy, where the PMI jumped from March and was just shy of February's 32-month high.

"Given the problems the euro zone faces, to get even a modest rate of positive growth this year is a good sign. But there is an increasing concern that two of the larger economies - Italy and France - are struggling to gain any traction," Commerzbank's Dixon said.

Topping expectations of all 36 economists polled by Reuters, the bloc's dominant services industry led the charge while manufacturers also had a stronger month than the median forecast had suggested.

But worryingly for policymakers, who have struggled to bring inflation up to their 2 percent target ceiling, service firms cut prices for the 29th month in a row, and did so at a steeper pace than in March.

Inflation fell to just 0.5 percent in March, its sixth straight month in what European Central Bank President Mario Draghi has called a "danger zone" below 1 percent.

Still, the strong data gave support to the euro, which was up 0.28 percent against the U.S. dollar.

"Today's figure buys the ECB a bit more time. With the recovery still on track there doesn't seem to be an urgent need for strong action, though deflationary pressures still warrant attention," Peter Vanden Houte at ING said.

Markit's flash composite PMI, widely regarded as a good gauge of growth, jumped to 54.0 in April from March's 53.1, above the 50 mark for the 10th month and chalking up its highest reading since May 2011. A Reuters poll had predicted no change.

"The PMI indicator corroborates the picture that the euro zone recovery has legs," Vanden Houte said.

Aside from Germany the rest of the bloc also performed well apart from France, where although the index held above 50 for the second month running it was down from the previous reading. The French PMI has been below the wider euro zone reading for 20 months.

(Additional reporting by Richard Leong in New York; Editing by Meredith Mazzilli)