Rise in factory activity lifts world shares

Mon Dec 3, 2012 8:34am EST
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By Richard Hubbard

LONDON (Reuters) - The euro hit a six-week high and shares rose on Monday as signs of growth in China and a slower contraction in Europe lifted demand but concern over the U.S. budget crisis capped gains.

The latest readings from both official and private sector surveys of China's vast manufacturing sector showed activity picked up November, adding to evidence the economy is reviving after seven quarters of slowing growth.

Final estimates of the euro zone's Manufacturing Purchasing Managers Index (PMI) for November showed factory activity declining at a slower rate, though the region is still on course for its worst quarter since early 2009.

"We are in an environment where the big picture risks are still there; the U.S. fiscal cliff, the euro zone and China - on two of those (China and the euro zone) arguably things have been improving," Philip Poole, global head of macro investment strategy at HSBC Global Asset Management, said.

The MSCI world equity index .MIWD00000PUS edged up about 0.25 percent to 333.5 points after all the PMI data, with Wall Street set to open firmer ahead of the release of the November ISM survey of U.S. factory activity. .N

The Institute of Supply Management (ISM) index of national factory activity, one of two PMI surveys due, is expected to decline slightly to 51.3 for November, staying above the 50-line that separates expansion from contraction. USPMI=ECI

Data on Monday also showed British factory output shrank much less than expected in November.

However, investors are cautious about reading too much from the surveys while there is no solution in Washington on how to avoid a package of tax rises and spending cuts due in early 2013 which could send the giant economy back into recession.   Continued...

A general view of the German stock exchange in Frankfurt November 7, 2012. REUTERS/Lisi Niesner