* Spreading euro crisis plagues global economies
* Euro zone factory PMI hits lowest since June 2009
* China official PMI slips to eight-month low
* U.S. manufacturing contracts for second straight month -
* Hopes fading for dramatic central bank action this week
By Steven C. Johnson and Jonathan Cable
NEW YORK/LONDON, Aug 1 U.S. and euro zone
factory activity slumped again in July while Chinese
manufacturing hit an eight-month low, surveys showed on
Wednesday, as economies worldwide showed signs of slowing.
The data may boost pressure on central banks to do more to
stimulate growth. Economists suspect the Federal Reserve may
move in that direction later on Wednesday, possibly by saying it
won't raise U.S. interest rates until 2015.
Economic malaise was worst in the 17-country euro zone,
where output plummeted and the manufacturing sector contracted
for an 11th straight month as a downturn that began in smaller
countries continued to spread into core euro area economies.
The slump worsened in Italy, Spain and Greece as well as the
region's two biggest economies -- Germany and France.
Europe's economic woes also depressed export orders in China
and India, where manufacturing had appeared to be holding up
despite the euro zone debt crisis and slowing U.S. growth.
U.S. manufacturing, meanwhile, contracted for a second
consecutive month, according to the Institute for Supply
Management's index of national factory activity.
A separate report from Markit showed activity barely
expanding and at its slowest pace in almost three years, partly
due to lower European demand for U.S. products.
"The manufacturing numbers are pretty dismal. There's really
no good way to read them," said Omer Esiner, chief market
analyst at Commonwealth Foreign Exchange in Washington. "I think
they bolster the case for more Federal Reserve action, and
globally the argument is pretty much the same."
Added Peter Vanden Houte at ING: "The euro zone continues to
struggle with the debt crisis, while the world economy is
slowing down. This last piece of information should give
policymakers food for thought."
Even so, there was plenty of doubt over how much the Fed,
European Central Bank and Bank of England will or can do to turn
Economists expect the Fed, which finishes a policy meeting
later on Wednesday, to wait until September before launching
another round of asset purchases.
Markets expect the ECB to do something as soon as Thursday,
though insiders have told Reuters that bold policy action could
be weeks away.
The Bank of England is already in the middle of a
money-printing campaign, recently increasing it to 375 billion
EUROPE, U.S. STRUGGLE
Markit's Eurozone Purchasing Managers' Index for the
manufacturing sector fell to 44.0, well below the 50 level that
divides growth from contraction. The reading was the lowest
since June 2009. Output fell sharply.
In Britain, the manufacturing sector shrank at its fastest
rate in more than three years, dealing a blow to hopes the
country may come out of recession over the summer as it hosts
the Olympic Games.
ISM said its U.S. manufacturing index stood at 49.8 in July,
up slightly from June but still signalling contraction.
Employment fell to a 2-1/2-year low.
Consumers appeared in no mood to make big-ticket purchases
last month either. All three U.S. automakers reported
lower-than-expected sales last month. The largest, General
Motors Co, reported a 6 percent drop in sales.
In Brazil, weak global demand and an unfavorable exchange
rate kept the HSBC Purchasing Managers' Index below
WEAK ACTIVITY ACROSS ASIA
Europe's problems were being felt in Asia. China's official
factory PMI fell to an eight-month low of 50.1 in July.
Analysts drew some comfort from the slight improvement in
the HSBC China PMI, which rose to 49.3 and focuses on smaller
private enterprises while the official PMI primarily covers big
Unlike central banks in developed economies, China also has
plenty of room to cut interest rates.
"The low inflation environment should allow Chinese
authorities to provide further stimulus in coming months," said
Craig James, economist at Commsec in Sydney.
But 10 of China's 11 major sub-indexes in the official PMI
were under 50, showing just how much the economy is struggling
to revive its momentum, with little evidence of measures aimed
at boosting domestic demand taking quick effect.
Chinese President Hu Jintao was quoted on Tuesday as saying
fiscal and monetary policy support for the economy would be
stepped up in the second half, while Premier Wen Jiabao spoke of
policy fine-tuning and signs that the economy was stabilizing.
Manufacturing also looked weak elsewhere in Asia. Activity
in South Korea shrank by the most in seven months, Taiwan
contracted and factories in India, Asia's third-largest economy,
showed the sharpest one-month drop in growth since September.