Worldwide factory output falters

In China and the United States,similar surveys showed worrisome signs for future manufacturing.

The Global Manufacturing purchasing managers index,compiled by JPMorgan with research and supply organizations,fell in August to 50.1,indicating growth has stalled,as new orders declined for the second month running.

There is a risk of a return to recession, said Jeavon Lolay at Lloyds Banking Group. We are not out of the woods.

The euro slumped against major currencies on the disappointing European data,while American stocks gained after traders took heart that the US factory data did not point to an outright contraction as was expected.

Indeed,the modest factory growth and a separate report showing a drop in new US jobless claims stood in contrast to a slump in consumer and business confidence that has threatened to trigger a double-dip recession in America.

Economists await a US payroll report for August due on Friday which could show if a political battle in Washington DC in July over the US fiscal deficit and debt led businesses to cut back on hiring.

Fast-growing economies in Asia are feeling the pinch in their exports as economic growth slows in Europe and the US and Europes poorer southern nations are slashing government spending as the region battles a sovereign debt crisis.

Chinas new export orders index fell and Beijing pinned the blame at least partly on the debt crises in advanced economies.

The countrys statistics bureau said the export sector was facing challenges. The full purchasing managers index (PMI) for the month increased slightly.

HSBCs PMI reading for China,which relies more heavily on private companies than the large state-owned enterprises that dominate the government PMI report,showed growth in factory activity,while still rapid,was slowing.

The Wests deteriorating growth outlook is becoming an increasingly heavy burden to bear, said Donna Kwok,an economist with HSBC,which sponsors PMI reports in many Asian countries.

Markits Eurozone Manufacturing PMI fell to 49.0 in August. It was the first time since September 2009 that the index for the sector,which drove a large part of the blocs recovery,has fallen below the 50 mark.

In a worrying sign for policymakers,the slowdown appears to be spreading. German factories,which have been supporting growth in the bloc,eased off the accelerator and French manufacturing contracted for the first time since July,2009.

The German economys growth slowed to just 0.1 percent in the second quarter,figures released Thursday showed,adding to evidence the outlook for Europes largest economy darkens.