Australia Sept manufacturing activity growth slows

CANBERRA, Oct 2 (Reuters) Growth in Australia's manufacturing sector eased in September as employment and stock levels declined alongside soft exports and a surging Australian dollar, a private survey showed on Tuesday.

The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) dropped 1.7 points to 50.7, just above the 50 threshold that separates growth from contraction in the sector.

''It was a very ordinary Australian PMI result for the month made even more ordinary by the softness in new orders and exports,'' said Heather Ridout, Ai Group Chief Executive.

The index measuring new orders rose 1.0 points to 52.1, following on from a 10.4 point drop in August. The survey's measure of exports recovered slightly, rising 3.0 points to 50.8, but was still down from 53.8 in unadjusted terms in September 2006.

''On a cautionary note, selling prices are restrained but are trending upwards, albeit moderately,'' Ridout said. ''This trend comes on the back of steep rises in raw materials costs partly driven by the drought and higher oil prices.'' The Australian dollar had jumped to fresh 18-year highs above 89 U.S. cents and the country's central bank is this week expected to leave interest rates at a decade high of 6.5 percent.

By industry, activity expanded in six of the 12 key PMI sectors, with clothing and footwear the strongest followed by wood, wood products and furniture, as well as basic metals.

Food and beverages; paper, printing and publishing; chemicals; and coal and petroleum firms drove the easing, Ai said.

Companies cited the high Australian dollar, skills shortages, weather and Chinese demand as factors influencing economic conditions, along with competition.

The index of employment fell sharply by 5.5 points to 47.3, putting it below the 50 break-even barrier.

The cost of raw materials rose 4.7 points to 73.1 seasonally adjusted, and in unadjusted terms lifted in seven of the 12 sectors.

Reuters MP VP0720