Euro zone headed for recession, China, U.S. struggle

NEW YORK/LONDON (Reuters) - World business surveys on Thursday painted a picture of economic malaise stretching from Beijing to Berlin, adding to concerns that the world economy was slowing down.

The 17-country euro zone appeared headed for its second recession in three years. Financial data firm Markit said its Purchasing Managers' Index suggested the euro zone economy would shrink about 0.5 percent in the July-to-September quarter.

Europe's problems created headaches in other economies as well, particularly China's, which counts Europe as its single biggest export market. The HSBC Flash China manufacturing PMI fell to 47.8 in August, its lowest level since November.

By contrast U.S. manufacturing activity improved slightly this month, though new export orders declined for a third straight month because of reduced demand in Europe, while the pace of hiring slowed for the fifth month in a row.

A separate report showed the number of Americans applying for first-time jobless benefits rose unexpectedly last week.

"The indicators taken as a whole indicate a material slowdown in the pace of the world economy," said economist Philip Shaw at Investec.

Whether that will be enough to provoke more action from central banks remained unclear, though. The European Central Bank is expected to cut interest rates next week, but analysts do not expect it to start a bond-buying program to reduce borrowing costs for troubled governments. <ECILT/EU>

And while minutes from the last U.S. Federal Reserve meeting suggested another round of stimulus could come "fairly soon," subsequent signs of improvement in the labor and housing markets may keep the central bank on the sidelines for a while longer.

St. Louis Fed President James Bullard on Thursday said the pace of U.S. growth would have to worsen more significantly before the Fed acted. "Going along at this slow pace is not enough to justify gigantic action," he said.