October 1, 2013 / 3:12 PM / in 4 years

GLOBAL ECONOMY-U.S. manufacturing growth picks up, Chinese factories struggle

* China PMIs edge up but raise questions about pace of recovery

* Euro zone manufacturing eases, divergences remain between countries

* U.S. manufacturing growth near 2-1/2-year high: ISM

* Rival U.S. factory index shows only modest growth

By Steven C. Johnson and Koh Gui Qing

NEW YORK/BEIJING, Oct 1 (Reuters) - U.S. manufacturing grew last month at its fastest clip in nearly 2-1/2 years but expansion in China’s massive factory sector was slight and deep divergences persisted in euro zone countries, surveys on Tuesday showed.

The data, drawn from business surveys released on Tuesday, highlighted the uneven nature of the global economic recovery. Signs that China may be struggling were of particular concern with a partial U.S. government shutdown and political crisis in Italy already stoking uncertainty in financial markets.

Both China’s official purchasing managers’ index and a separate one compiled by HSBC showed manufacturing grew by less than expected in September.

Similar indexes measuring the factory sectors in India, South Korea and Taiwan rose modestly.

“The question is, ‘how sustainable is the recovery?',” said Haibin Zhu, chief China economist for JP Morgan in Hong Kong, referring to the world’s second largest economy. “We are still cautious. We see the recovery peaking in the third quarter and slowing in the fourth quarter.”

Analysts worry that China’s economy, which has slowed this year, may not rebound as quickly as hoped. Unlike in the past, the government is reluctant to implement strong stimulus policies for fear they could cause longer-term problems.

The United States has been picking up some of the slack, with the economy having grown 2.5 percent in the second quarter. Manufacturing, too, appears to be gaining momentum after having contracted as recently as May.

The Institute for Supply Management said its index of national factory activity hits its highest level last month since April, 2011, and firms added the most new workers in 15 months.

Canadian manufacturing also grew at its fastest pace in more than a year, helped by a jump in new orders, while a report from Japan on Monday showed manufacturing activity expanded in September at its fastest pace since the 2011 earthquake and tsunami.

“We’re certainly seeing the developed world economies pick up, and I‘m still feeling pretty positive that they will continue to improve,” said Eric Lascelles, chief economist at RBC Global Asset Management in Toronto.

But weak global demand could remain a headwind, as evidenced by a rival report from data firm Markit, whose Final U.S. Manufacturing Purchasing Managers Index for September fell to a three-month low.

Fiscal problems in the United States could bite as well. A stalemate over federal spending on Tuesday forced the first partial U.S. government shutdown in 17 years, which could put up to 1 million workers on unpaid leave. That could slow U.S. growth and hurt global growth.

“The question will be whether it lasts longer than the market expects and starts to bleed into confidence,” Lascelles said.

The U.S. government faces another deadline in coming weeks to raise its debt ceiling of $16.7 trillion. Failure to do so could cause a historic U.S. debt default.

In Europe, Italy is facing a government crisis of its own, with Prime Minister Enrico Letta facing a vote of confidence on Wednesday, raising questions about future stability and reforms.

Economic malaise in Italy, struggling to escape its longest post-war recession, and other southern European countries is keeping investors concerned about the long-term health of the 17-country euro zone, which narrowly emerged from a 1-1/2 year recession in the spring.

Manufacturing growth in Italy and Spain, the euro zone’s third and fourth biggest economies, eased off in September, suggesting economic recovery there remains fragile. Battered Greece’s contraction deepened.

In France, the region’s second biggest economy, factories edged closer to pulling out of a 19-month slump but were still contracting. Germany, Europe’s largest economy, grew but saw the pace of growth ease slightly from August. It was the result, some analysts said, of weakness to its south.

“Italy disappointed, Spain ditto. Germany has been caught in the backwash ... so no real improvement,” said Peter Dixon at Commerzbank. “There were some positive signs but we need more information before we can say that this definitely marks a turning point.”

Across the channel and outside of the currency union, growth in Britain’s manufacturing sector eased slightly in September from a two-year high the month before.

Manufacturing surveys in South Korea and India on Tuesday showed activity contracted less sharply last month than in August.

Elsewhere, Brazilian factory activity contracted for the third straight month, though output expanded slightly, while Mexico’s factory sector stagnated in September.

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