World economic recovery still fragile but on track, latest factory data shows

BEIJING (REUTERS) - European factories experienced robust growth last month, and China bounced back on rising demand, lifting prospects for broad-based recovery on the back of a revival in the United States.

India, at the epicentre of current emerging market turmoil, saw its manufacturing activity shrink for the first time in over four years, however. Lacklustre performances in France and in some other Asian manufacturers also highlighted the fragility of the rebound.

The data comes as markets are bracing for the US Federal Reserve to begin winding down its huge bond-buying programme, itself a signal the central bank of the world's largest economy thinks the recovery is on track. That prospect, however, is causing concern in some of the emerging economies that have most benefitted from the US stimulus.

"The bag is getting more full with better numbers. The pick-up in the Chinese PMI is helpful. That was the one that was worrying; that's the big one in terms of sentiment, with a bit of help from the European numbers," said Ms Victoria Clarke at Investec.

Factory activity in the euro zone rose at its fastest pace in over two years, while China's manufacturing sector grew last month for the first time in four months, according to business surveys published on Monday.

Markit's euro zone manufacturing purchasing managers' index (PMI) jumped to 51.4 from 50.3 in July, the first month the index had been above the 50 line that signifies expansion since February 2012. The reading pipped an earlier preliminary figure of 51.3.

However, while those surveys showed the euro zone zone's nascent recovery may be taking hold, activity in France - the bloc's second-biggest economy - declined for the 18th month.

"In the end, France should be dragged by the rest of the euro area, but it certainly seems to be lagging. It's not a major worry, but we would expect it to follow suit," Ms Clarke said.

Highlighting the fragility of the recovery, the PMI showed European manufacturers reduced headcount for the 19th month in August and at a sharper rate than in July.

Outside the currency bloc the news was better: British manufacturing accelerated again last month, and new orders and output rose at their fastest pace in nearly 20 years, boosting hopes that Britain's own recovery is broadening.

Chinese factories expanded for the first time in four months. Data on Friday, meanwhile, showed Japanese manufacturers also posted stronger growth. A PMI survey showed activity grew last month for the sixth consecutive month.

In South Korea, Monday's local PMI edged up but held well under the 50-mark, although other heavyweight Asian electronic makers such as Taiwan fared better.