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Europe's manufacturing sector revs up in March

Written by: Staff

LONDON, Apr 3 (Reuters) European manufacturers reported a broad surge in business and pricing power in March as well as a small but notable improvement in employment -- bolstering the view that Europe's economy is accelerating.

Growth in the manufacturing sector rose at its quickest pace in 5-1/2 years in the euro zone and even longer in Switzerland, and the prices companies were able to charge for their goods rose at the fastest rate in a year in many countries, surveys showed.

While the pace of expansion weakened in Britain, Poland and Russia, the overall impression from monthly surveys of company purchasing managers strengthened the belief that Europe is doing better after yet another lull in late 2005.

Economists were positively surprised by the strength of the latest European Purchasing Managers' Indices (PMI), collated by NTC Economics, and some said a similar survey to be released in the United States at 1400 GMT might surprise positively too.

''Today's release corroborates developments seen in business confidence last week, showing considerable momentum has recently been building in the Euro area manufacturing sector, driven by, but not confined to, Germany,'' said Silvia Pepino, an economist at JP Morgan investment bank.

After emerging from contraction last July, the euro zone PMI is now at similar levels to the equivalent U.S. survey, due to be released by the Institute for Supply Management at 1400 GMT.

That is forecast at 57.9 in March, from 56.7 in February.

''There's a chance we could see an upside surprise in the ISM this afternoon, given the strength of these European numbers,'' said Tim Drayson at ABN AMRO.

Similar surveys in Asia showed another small rise in Chinese manufacturing growth and a dip from record levels in Japan that did not appear to worry economists too much.

Japan's PMI index slipped to 56.3 in March from 57.0 a month earlier, following a dip in industrial production in February but that was the first decline in seven months.

That PMI readout came hand-in-hand with the Bank of Japan's quarterly Tankan survey, showing that confidence among big manufacturers slipped unexpectedly in the first three months of the year too.

A figure above 50.0 indicates expansion, less than 50.0 indicates contraction.

EUROPE EMERGING FROM SLUMBER In global terms, the news from Europe was perhaps the most significant.

The big economies of the euro zone -- Germany, Italy, France -- all shifted up a gear along with Spain.

Outside the currency bloc, growth in the Swiss manufacturing sector hit its fastest expansion rate in nearly six years.

The headline PMI for the euro zone hit 56.1 in March - its highest level since September 2000 - versus 54.5 in February, with 5 1/2 year highs in Germany and Italy and a big jump in France too.

The survey of 3,000 manufacturers showed that many of them boosted profit margins by charging higher prices for their goods in March, lifting the output price index to 54.4, a 13-month high, from 53.4.

''That's great for corporate profitability,'' NTC economist Chris Williamson said.

The euro zone PMI employment index also showed slight growth for only the second time in 58 months.

But at 50.9 the jobs reading was more a glimmer of hope than proof of a marked turnaround in countries such as France and Germany where unemployment is close to 10 percent.

''Especially given the height of the output and order book indicators you would be hoping for a stronger number than that,'' NTC's Williamson said.

Edward Teather, an economist at UBS Warburg bank, said that he believed the employment situation would pick up and in turn help to fuel consumer spending, putting the economic recovery on a firmer footing in Europe.

Monday's news from Europe made it all the easier for the European Central Bank to forge ahead with further rises in interest rates in the knowledge that's its anti-inflation steps were not hurting economic recovery, he said.

The ECB meets on Thursday and is widely expected to keep rates on hold at 2.5 percent after two rises in the past four months. But Reuters latest poll shows most economists predict another hike in May.


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