Euro zone and U.S. manufacturing expand, China struggles

By Jonathan Cable and Caroline Valetkevitch

LONDON/NEW YORK (Reuters) - Euro zone businesses ramped up activity this month as the European Central Bank started printing money to spur economic growth, while a slowdown among Chinese factories fueled expectations of more monetary stimulus.

U.S. manufacturing activity growth also edged up despite a stronger U.S. dollar and the threat of an interest rate rise from the Federal Reserve later this year.

The Eurozone Composite Flash Purchasing Managers' Index (PMI) from data vendor Markit, based on surveys of thousands of companies and seen as a good growth indicator, jumped to a near- four-year high of 54.1 from February's 53.3.

The surveys pointed to first-quarter euro zone economic growth of 0.3 percent, Markit said, matching the previous three months' but shy of the 0.4 percent median forecast in a Reuters poll taken earlier this month.

The ECB began its quantitative easing program to buy bonds worth more than a trillion euros in March.

"I wouldn't want to give QE too much credence at this stage. The ECB has only been buying for a couple of weeks and QE takes a long time to have any impact - if at all," said Peter Dixon at Commerzbank. "The outright QE itself has had zero impact; growth was already happening."

A sub-index measuring euro zone prices jumped to an eight-month high of 49.0. But it has spent three years below the break-even level of 50, suggesting inflation will not return any time soon.

Oil prices have tumbled over the past nine months and inflation rates across the world have followed suit.

European shares and the euro edged up after the surveys were published but the slowdown in China kept oil and commodities-linked assets under pressure. [MKTS/GLOB]

CHINA BRAKES

China's flash HSBC/Markit PMI dipped to an 11-month low of 49.2 in March, below the 50 level that separates growth from contraction.

"The deteriorating PMI confirmed that downside risks to China's 2015 growth have started to materialize. We expect an accelerated monetary easing cycle and somewhat loosening of the fiscal stance," said Jian Chang at Barclays.

Some analysts expected China's first-quarter economic growth to slip below the government's new full-year target of 7.0 percent, widely seen as the level needed to keep employment steady.

China's economic slowdown is stabilizing, with employment and services among the bright spots, Vice Premier Zhang Gaoli said on Sunday.

The country's leaders have said they would be willing to tolerate somewhat slower growth as long as the labor market remained resilient. But the latest PMI employment sub-index contracted for a 17th straight month, hitting its lowest since the depths of the global financial crisis.

U.S. MANUFACTURING GROWTH AT FIVE-MONTH HIGH

Growth in the U.S. manufacturing sector edged up to a five- month high in March, according to Markit.

The preliminary U.S. Manufacturing Purchasing Managers' Index rose to 55.3, its highest since October, when the final PMI was 55.9.

"Manufacturing regained further momentum from the slowdown seen at the turn of the year, with output, new orders and employment growth all accelerating in March," said Chris Williamson, Markit's chief economist.

The flash reading of the index measuring new orders also rose in March to the highest since October, coming in at 56.4, compared with February's final reading of 55.8.

Employment growth also rose in March from February, Markit said.

(Additional reporting by Kevin Yao in Beijing; Editing by Jeremy Gaunt, Clive McKeef and Dan Grebler)