Asian factories perk up, U.S. shows improvement

Asia's large economies started to pick up steam last month after a year of slower growth, surveys showed on Thursday, while U.S. manufacturing showed modest improvement.

The jury was out on whether the data signaled sustained improvement in the fragile global economy, although analysts said strength in the United States and China, the world's two biggest economies, was essential to overall economic well-being.

That is particularly so at a time when a debt crisis in the 17-country euro zone has plunged several countries in the region into recession. Reports on major euro zone countries are due on Friday and expected to show continued economic contraction.

But the picture appeared to be brightening elsewhere.

The Institute for Supply Management said the pace of U.S. manufacturing growth picked up slightly in October, with its index rising to a five-month peak of 51.7. But hiring in the sector slowed.

A separate report from data firm Markit showed the slowest pace of growth in 37 months, the result of reduced demand for U.S. goods overseas.

"It looks like manufacturing has stopped deteriorating. It's weak growth but it's growth," said Christopher Low, chief economist at FTN Financial.

More encouraging, payrolls processor ADP said U.S. companies added 158,000 jobs in October, far more than the 135,000 forecast in a Reuters poll. [ID:nEAPA10EH0] Another report showed consumer confidence at a four-year high. [ID:nL1E8LV9LZ]

The data was welcomed by the U.S. stock market, which rose on the second day since it reopened following a massive storm that battered the U.S. Northeast earlier this week.

The data "are encouraging," said David Sloan, economist at 4Cast Ltd in New York. "There shouldn't be any distortions from the hurricane yet. There is some evidence of labor market improvement. It is not totally convincing yet but overall the message is positive."

A more comprehensive government jobs report due Friday, however, was expected to be a bigger test of U.S. labor market health and will be the last economic data before the November 6 presidential election. Economists surveyed by Reuters expected the economy added 125,000 jobs in October.

In Brazil, manufacturing expanded for the first time since March, according to the HSBC Purchasing Managers' Index, boosting hopes for economic improvement in the fourth quarter.

ASIAN REBOUND

Data from Asia was encouraging as well. China's economy, the motor of global growth in recent years, appears to have gathered pace in October after slowing to its weakest pace in more than three years in the third quarter.

Chinese manufacturing showed renewed vim, with the official manufacturing purchasing managers' index rising to 50.2 from 49.8 in September. Economists said that could help lift fourth-quarter growth above the 7.4 percent rate recorded in the July-to-September period.

Also on Thursday, the final reading of the Chinese HSBC PMI rose to 49.5 in October from 47.9 in September. The reading was the highest since February.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned companies, while the HSBC survey targets smaller, private companies that have limited access to bank loans.

"Overall sentiment is brightening and Chinese orders are suggesting a moderate recovery," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

Beijing has been following a program of pro-growth fine tuning of economic policies for a year and analysts broadly expect that to remain in place when a new leadership line-up at the top of the ruling Communist Party is unveiled this month.

"The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus expected," Zhiwei Zhang of Nomura said in a comment emailed to Reuters.

"We believe macro data will continue to surprise on the upside in coming months, as the government continues to ease policy through the period of leadership transition."

South Korea, another of Asia's manufacturing powerhouses, posted the first annual rise in exports in four months in October, adding to hopes for a turnaround after a year-long slump in global trade.

HEADING FOR THE CLIFF?

The biggest risk to more robust global growth, however, may be just around the corner. After the U.S. election, Congress will have less than two months to decide whether to let some $600 billion of automatic tax increases and spending cuts to take effect.

While fiscal tightening of that magnitude would help reduce a U.S. budget deficit of more than $1 trillion - something both Democrats and Republican say is essential - it would also be a big hit on U.S. output, which would threaten global growth.

That has raised concern among some central bankers and finance ministers due to attend a Group of 20 meeting in Mexico on Sunday and Monday.

It was also keeping market participants uneasy.

"The big thing weighing on business sentiment is the fiscal cliff. Things like investing and hiring are delayed but not cancelled outright," said FTN Financial's Low said.

"The divergence between business and consumer sentiment is unusual. Consumers seem oblivious about possible tax increases."

(Additional reporting by Yati Himatsingka in Bangalore, Jonathan Standing in Taipei and Sven Egenter in London; Editing by Clive McKeef and Andre Grenon)