India March manufacturing PMI shrinks for 5th month

MUMBAI, April 1 (Reuters) - Indian manufacturing activity contracted for a fifth straight month in March as demand remained depressed by the global economic downturn, although there were some signs of improvement, a survey showed on Wednesday.

The ABN AMRO Bank purchasing managers' index (PMI) INPMI=ECI, based on a survey of 500 companies, rose to a seasonally adjusted 49.5 in February from January's 47.0.

The index showed signs of slight improvement after hitting a trough of 44.4 in December. A reading above 50 signals economic expansion while a figure below 50 suggests contraction

"On the whole, it appears that business conditions in the manufacturing sector are gradually improving," said Gaurav Kapur, senior economist at ABN Amro Bank.

Manufacturing makes up about 16 percent of India's gross domestic product.

"It appears that domestic demand is picking up," Kapur said.

"External demand, however, remains weak and contracted in March too, for the sixth consecutive month."

The new orders index rose to 49.5 from 45.9 in February.

The government expects the economy to have grown about 7 percent in the 2008/09 fiscal year that ended on March 31, after growing at 9 percent or more in the previous three fiscal years.

In order to shore up demand in Asia's third-largest economy, the central bank has aggressively cut rates since October, most recently in early March. The key short-term lending rate has been cut by 400 basis points in five moves to stand at 5 percent.

The PMI survey, which is compiled by UK-based Markit Group, comes well ahead of official statistics. (Reporting by V. Ramakrishnan; Editing by John Mair)