U.S. manufacturing sector growth slows in Sept-ISM

NEW YORK, Oct 1 (Reuters) U.S. manufacturing expansion slowed in September to its most sluggish since March as new orders and production slipped, although employment improved, according to a survey published on Monday.

The Institute for Supply Management said its index of national factory activity fell to 52.0 from 52.9 in August, below economists' median forecast for a dip to 52.6.

A reading above 50 indicates expansion.

Stocks and bonds clung to earlier gains after the latest manufacturing figures supported the view that the Federal Reserve would trim benchmark interest rates in the coming months to stimulate economic growth.

The report's index on new orders, a gauge of future growth, declined to 53.4 from 55.3 in August, while its reading on production slipped to 54.6 from 56.1.

''Overall, soft but not disastrous,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in a note after the release of the ISM report. ''We had expected a slightly higher reading following a raft of regional surveys released last week, so this is a modest surprise.'' There were a few bright spots in the ISM report. The employment index edged up to 51.7 from 51.3, while the prices paid index, which measures inflationary pressures within the factory sector, receded to 59.0 from 63.0.

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