* China PMI shows factory activity declined in May
* U.S. manufacturing activity hits seven-month low
* Euro zone downturn eases slightly
* Data, Bernanke comments from Wednesday send shares
By Andy Bruce and Steven C. Johnson
LONDON/NEW YORK, May 23 Chinese factory activity
declined in May for the first time in seven months and U.S.
manufacturing grew at its slowest pace since October, suggesting
it may take a while before the global economy starts to pick up
Thursday's downbeat business surveys from the world's two
largest economies came a day after Federal Reserve Chairman Ben
Bernanke spooked markets by hinting that the U.S. central bank
could soon scale back monthly bond purchases, provided the
economy maintained its recent momentum.
Stock markets around the world tumbled after Bernanke's
remarks and extended losses after the Chinese factory data was
MSCI's world equity index was down 1.4
percent, while Japan's Nikkei index plummeted 7.3
percent and the benchmark S&P 500 index fell about 0.5 percent.
Separate surveys showed the downturn in the 17-country euro
zone eased slightly this month, though businesses continued to
suffer from a chronic lack of new orders, which should inhibit a
Financial data firm Markit said that in the United States,
falling overseas demand and domestic belt-tightening pushed the
U.S. Manufacturing Purchasing Managers Index to a seven-month
low of 51.9 in May from 52.1 the previous month. A reading above
50 indicates expansion.
Chris Williamson, Markit's chief economist, said the data
suggested that manufacturing, which had its best quarter in two
years during the first three months of 2013, would provide only
a modest boost to overall U.S. growth in the second quarter.
But recent improvement in the U.S. labor market and rising
home prices have suggested the U.S. economy is recovering more
quickly than its peers.
That has raised the prospect that the Fed could, as Bernanke
suggested, reduce its $85 billion in monthly bond purchases at
one of its "next few meetings," a scary prospect for stock and
bond investors who have grown accustomed to support from the
U.S. central bank.
"You can argue both sides, as you see some indicators that
are clearly improving and others that are still weak, and that
shows how difficult a position the Fed is in," said Omer Esiner,
market analyst at Commonwealth Foreign Exchange. "But the
propensity seems to be to wind down sooner rather than later."
Policymakers in Beijing are also facing a dilemma, which was
underscored by the HSBC flash Purchasing Managers' Index that
showed growth in China's massive manufacturing sector contracted
in May for the first time in seven months.
Officials must decide whether to provide stimulus of their
own to boost the sector or tolerate a slowdown while focusing on
reducing China's dependence on exports and investment, changes
economists say would bring long-term benefits.
Yao Wei, economist at Societe Generale in Hong Kong, said
the debate favors policy inaction from Beijing for now - as long
as economic growth remains above 7 percent.
"We don't think it will trigger any cyclical policy move as
long as the job market is fine," she said. "China is really on a
path of structural deceleration. It's possible (to meet the
official growth target), but it's becoming increasingly
"Hopes of a significant recovery (in China) are looking
misplaced," added Andrew Kenningham, global economist at Capital
Economics in London. "If you look at the global picture overall,
it's slightly weaker than expected but not dramatically so."
LIGHT AT THE END OF EUROPE'S TUNNEL?
The euro zone PMI suggested the bloc's economy is likely to
contract again in the second quarter.
Markit's flash Eurozone Services PMI, which surveys around
2,000 companies ranging from major banks to caterers, rose in
May to 47.5 - a three-month high - from 47.0 in April.
While that was a little better than economists polled by
Reuters had expected, the PMI has now spent 16 straight months
below 50, the threshold that divides growth and contraction.
"We see this as confirmation of our expectation that the
euro zone economy will end its downtrend in the spring," said
Christoph Weil, analyst at Commerzbank.
"That said, a noticeable recovery is still not in sight; the
economy will only grow slightly in the coming quarters and it
will continue to feel like a recession," he added.
Survey compiler Markit said the surveys pointed to a second
quarter contraction similar to the 0.3 percent dip the euro zone
suffered between January and March.