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Europe, Asia September factory activity slumps

Oct 3, 2011, 3:19 a.m.
A worker operates an electrolysis furnace, which produces aluminium from raw materials, at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, May 18, 2011. REUTERS/Ilya Naymushin

By Jonathan Cable and Emily Kaiser

LONDON (Reuters) - Factory activity in Europe and Asia slumped in September to levels not seen since the depths of the financial crisis as export demand dropped, surveys showed on Monday, reinforcing fears of a return to recession.

Corresponding figures for the United States due later on Monday are expected to underscore the gloomy outlook for the global economy.

The euro zone's manufacturing contraction deepened last month as new orders shrank at their fastest pace since mid-2009. Although Europe's leaders have so far managed to prevent the euro zone debt crisis triggering a financial catastrophe, data points to worsening economic fortunes across the bloc.

Even in China, which reported a slight uptick in its official PMI, economists saw evidence of a cool-down. China's factory activity typically rises in September as businesses prepare for the Golden Week holiday, but this year's increase was smaller than the average.

"There was no reason to be cheerful, as this was in fact the weakest September reading ever and was on tie with that in 2008," said Yao Wei at Societe Generale.

Markit's Eurozone Manufacturing Purchasing Managers Index (PMI) which gauges changes in the activity of thousands of factories in the countries that share the euro, fell to a final reading of 48.5 in September from 49.0 in August.

It is the second consecutive month the manufacturing PMI has been below the 50 mark that divides contraction from growth.

"In a nutshell, the recession in the euro zone periphery's manufacturing activity is weighing on the overall euro zone index that -- in September -- suggests that the economy is not growing in Q3," said Annalisa Piazza at Newedge.

Mounting evidence of a weakening euro area economy prompted some economists to predict the European Central Bank will cut interest rates on Thursday, although most expect it to wait until the new year before easing policy.

Factory activity in Spain, struggling under harsh austerity measures like much of the euro zone periphery, fell at the fastest pace in more than two years, surveys showed on Monday.

French manufacturers, meanwhile, saw activity decline for the second month in a row. Even in Germany, the biggest and arguably the most prosperous economy in the 17-nation bloc, manufacturing growth effectively came to a standstill.

But British manufacturing unexpectedly grew for the first time in three months, although a slide in new export orders highlighted the dangers facing the sluggish recovery.

The HSBC PMI for China's services sector rose to 53.0 in September, recovering from an all-time low of 50.6 in August, lifted by new orders.

India's manufacturing output recorded its biggest monthly decline since late 2008, going from robust growth to near stall speed in just five months and a fall in the new orders index for the sixth straight month suggested more weakness ahead.

World stocks kicked off the final quarter of the year sharply lower on Monday while the yen and government bonds rose as concerns grew that a broader Greek debt default may be in the works after figures showed Athens would miss a deficit target.

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