Brazil industry activity downturn is slowest in 6 months - PMI
* HSBC PMI rises for 3rd time in row to 49.8 in Sept
* Output grows as factories clear order backlog
* Employment drops, but at weaker pace than in prior months
SAO PAULO, Oct 1 (Reuters) - The downturn in Brazil's manufacturing activity slackened in September to its slowest pace in six months as industrial employers laid off the fewest number of workers since June and increased output, a private survey showed on Monday.
The HSBC Purchasing Managers' Index (PMI) for the Brazilian manufacturing sector staged its lowest decline to 49.8 in September on a seasonally adjusted basis.
The 49.8 level barely fell short of the 50 mark, which marks the divide from contraction and expansion.
However, it was the third month the number has moved higher, suggesting the downturn in manufacturing activity was becoming less pronounced.
The HSBC PMI survey is comprised of 11 components. One of them, manufacturing output, actually rose in September, as factories stepped up production, at the greatest pace since March, to clear order backlogs.
"The PMI survey reinforces perceptions that Brazil's manufacturing sector experienced a modest rebound at the end of the third quarter and supports the improvement of sentiment regarding the economic outlook for the fourth quarter of 2012," said Andre Loes, chief economist for Brazil at HSBC.
Another survey released last week by think tank Fundação Getulio Vargas revealed confidence among Brazilian industrials jumped in September to its highest level since July 2011.
On top of plans to launch new products, factories boosted output by depleting their order backlogs, said Markit Economics, who compiled the data for HSBC.
Brazilian factories have been hit hard by the current global slowdown. Saddled with onerous taxes, a strong currency and an insufficiently trained labor force, they had less room than foreign competitors to slash prices and fight for waning demand.
But recent data suggests a tentative recovery is underway.
Brazil's industrial output rose in July for the second straight month, surpassing market expectations, according to government data. Brazil's statistics agency IBGE will release industrial data for August on Tuesday.
Automobile output jumped 10.6 percent in August versus July, according to the national carmakers' association Anfavea.
To encourage a recovery, the central bank has cut its benchmark interest rate to a record low of 7.5 percent -- a far cry from over 26 percent just nine years ago. Rousseff also deployed a string of tax breaks and credit incentives to help revive Brazil's flagging industry.
The HSBC survey showed factories cut payroll jobs for the sixth month in a row, reflecting weak demand, but layoffs came at a slower pace than in the prior three months.
Manufacturers' input costs rose, as higher steel and raw material prices pushed inflation to its fastest since June 2011.