China, U.S. manufacturing jumps, Europe nearer recovery

Employees work at a shoe factory in Dongkou county, Hunan province April 5, 2012.

NEW YORK/LONDON (Reuters) - Manufacturing in China and the United States grew this month at the fastest pace in about two years while data suggesting German growth picked up boosted hopes for a swifter euro zone recovery.

The business surveys released on Thursday provided tentative signs that the world economy may be gaining traction after a sluggish 2012. Crucially, there were hopeful signals coming from the United States and China, the world's top economies.

World stock markets rose, with the S&P 500 index moving above 1,500 for the first time since late 2007. The benchmark U.S. index was on track for its seventh straight daily advance.

China's vast factory sector grew at its fastest clip in two years this month, according to HSBC's flash China PMI. Exports were surprisingly strong in December, while analysts said an increase in domestic activity should also help drive recovery.

"The consumer is coming back," said Tim Condon, an ING economist in Singapore. "Manufacturers are seeing the pick-up in spending growth as reason to expand production."

Economists said that suggested the world's second largest economy was on the mend after some two years of slowing growth.

"Probably the biggest thing that will affect markets this year is one's belief in the sustainability of the Chinese recovery," said Colin Moore, chief investment officer at Columbia Management in Boston, which oversees $340 billion.

U.S. manufacturing started the year strongly as well, as a surge in domestic demand led to the fastest rate of growth since March, 2011, according to financial information firm Markit's "flash" manufacturing Purchasing Managers Index.

Improved economic conditions in China and some parts of Europe also helped boost orders from abroad, the survey showed.

"However, it is the domestic market that is clearly providing the main impetus to the upturn," said Markit chief economist Chris Williamson.

Briklin Dwyer, an economist at BNP Paribas in New York, said both manufacturing and housing "need to show bigger improvement for quite some time to affect the broader economy."

A separate report showed the number of Americans filing for unemployment insurance fell to its lowest level since the early days of the 2007-2009 recession.

HOPEFUL SIGNS IN EUROPE

The 17-country euro zone continues to lag Asia and North America, though surveys in January showed conditions may be improving there as well.

Markit's "flash" Composite Eurozone Purchasing Managers' Index, which surveys around 5,000 firms and is viewed as a good growth indicator, jumped by more than expected to 48.2 from December's 47.2.

PMI data for Germany, Europe's largest economy and the bloc's growth engine, suggested its economy grew at its fastest pace in a year. But in France, the euro zone's second biggest economy, conditions got worse.

"The improvement in euro zone PMIs might be just a German story, a sign that the euro zone economy is far from being out of the woods," said Annalisa Piazza at Newedge Strategy.

Indeed, the euro zone-wide index has held below the 50 mark that separates growth from contraction in all but one of the past 17 months, consistent with a contraction in overall output at a quarterly rate of about 0.2-0.3 percent, Markit said.

But the pace of the contraction is slowing.

"At this stage the trajectory counts more than the absolute level, and here the main story is that the pace of recession is clearly easing," said Marco Valli, chief euro zone economist at UniCredit.

European Central Bank President Mario Draghi recently said the 17 countries that use the euro are benefiting from "positive contagion."

"An end to the recession may not be far off. Indeed, today's data clearly support the view that Germany might lead the euro zone out of recession in the first of half of this year," said Martin van Vliet at ING.

Germany's composite PMI rose to a 12-month high of 53.6 from December's 50.3.

The euro zone economy contracted in the second and third quarters of last year, meeting the general definition of recession. It is expected to have deepened at the end of 2012.

A Reuters poll published on Wednesday predicted a 0.4 percent contraction in the final months of 2012 and only a flat outlook for the current quarter.

EYES ON ASIA

According to Reuters polls of more than 600 economists, recovering growth in Asia should help make up for political and economic malaise in more developed countries.

HSBC said the sub-indices for output, new orders and employment that account for three quarters of the China flash PMI all improved in January.

"Despite still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months," said Qu Hongbin, chief China economist at HSBC.

(Additional reporting by Koh Gui Qing in Beijing and Richard Leong in New York; Editing by Chizu Nomiyama and Kenneth Barry)