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WASHINGTON (Reuters) - U.S. manufacturing activity unexpectedly accelerated in October and automobile sales were strong, easing concerns of a significant moderation in economic growth in the fourth quarter.
The pick-up in manufacturing, which was driven by robust growth in new orders and production, suggested the economy was weathering a slowing of demand in major markets such as China and the euro zone. Factory activity is now back at the 3-1/2-year high first reached in August.
"The overall growth outlook remains very resilient as the underlying strength in domestic demand clearly outweighs potential external headwinds," said Harm Bandholz, chief U.S. economist at UniCredit Research.
The Institute for Supply Management said its index of national factory activity rose to 59 last month from 56.6 in September. The index is now within spitting distance of its cycle high of 59.3 reached in February 2011.
Any reading above 50 indicates an expansion in activity.
The improvement was broad-based, and the index topped even the most optimistic estimate on Wall Street. The gauge of export orders, however, slipped.
While U.S. manufacturing is gaining steam, factories across Asia and the euro zone are sputtering. Manufacturing activity hit a five-month low in China and continued to stagnate in the euro zone, separate reports showed.
Back in the United States, automakers reported their strongest October sales in a decade on robust demand for brawny pickup trucks and roomy sport utility vehicles, even though top-seller General Motors Co (GM.N) missed expectations.
Sales rose 6.1 percent from a year ago to 1.28 million units, pushing the annual rate to a sturdy 16.46 million units.
Prices for U.S. government debt fell on the upbeat data, while the dollar rose to a fresh four-year high against a basket of currencies. On Wall Street, the Standard & Poor's 500 index .SPX and the Dow Jones industrial average .DJI ended slightly lower after briefly climbing to intraday records.
"It looks like the economy is going to close the year with a bang. This growth picture looks increasingly sustainable," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
The U.S. economy expanded at a vigorous 3.5 percent annual rate in the third quarter, although a surprise decline in construction spending in September reported on Monday could lead to a downward revision of as much as two-tenths of a percentage point.
Still, more concerning had been data last week that showed weak consumer spending and business investment plans at the end of the quarter, which had fueled worry about the risks of a sharp slowdown. Now, however, fourth-quarter estimates range as high as 3.0 percent.
Reporting by Lucia Mutikani, additional reporting by Daniel Burns in New York; Editing by Andrea Ricci and Meredith Mazzilli