* Signs Chinese reforms having positive economic impact
* Euro zone data strengthens expectations for policy easing
* U.S. data expected to show factory growth picking up
By Jonathan Cable and Aileen Wang
LONDON/BEIJING, June 2 Signs of an economic
revival in China have raised hopes that Beijing's targeted
measures to bolster growth are having an impact but a slowdown
in the euro zone will increase expectations of policy easing
Chinese factory activity expanded at the fastest pace in
five months in May but euro zone manufacturing growth slowed
more than initially thought, fuelling expectations that the
European Central Bank will ease policy this week.
"The Chinese numbers were fractionally higher. We are
beginning to make some progress but it is consistent with this
story that the Chinese economy is not going to grow as fast as
it has in the past," said Peter Dixon at Commerzbank.
"The European numbers were in and around the ballpark. It's
not the kind of data the ECB is going to react to instantly but
it is part of a bigger puzzle that says we need more growth in
U.S. manufacturing growth probably accelerated in May, a
report from the Institute for Supply Management (ISM) is
expected to show later on Monday.
Markit's final Manufacturing Purchasing Managers' Index
(PMI) for the euro zone slipped to a six-month low of 52.2 in
May from April's 53.4 as strong figures from Germany failed to
offset a contraction in activity in France.
The final number was below the initial reading of 52.5 but
held above the 50 mark that separates growth from contraction
for the 11th straight month. A subindex measuring output sank to
54.3 from 56.5, weaker than the initial reading of 54.7.
"The slowdown in euro zone manufacturing activity in May
reinforces belief that the ECB will deliver a package of
measures at its 5 June policy meeting," said Howard Archer at
IHS Global Insight.
To spur growth, boost lending and drive up inflation the ECB
is widely expected to cut its deposit rate to below zero, reduce
its main borrowing rate and launch a refinancing operation aimed
at businesses when it meets on Thursday.
Inflation in the 18 nations using the euro is predicted to
have held steady at just 0.7 percent in May, well within the
ECB's "danger zone" of below 1 percent and also below its
preferred 2 percent ceiling.
A key measure of German inflation, due later on Monday, is
expected to have fallen in May.
Germany is Europe's largest economy and again supported the
tepid overall growth but in France, the bloc's second-largest,
the PMI sank back below the 50 mark after just two months of
In non-euro using Britain manufacturing activity kept
expanding at a rapid pace in May, suggesting the economic
recovery has lost little of its shine this quarter.
The reassuring Chinese factory data and another record high
for Wall Street lifted world stocks and commodities on Monday,
although markets are waiting to see how far the ECB will go with
policy easing plans.
China's official PMI, which is geared towards bigger,
state-owned firms, rose to 50.8 in May, from April's 50.4, the
National Bureau of Statistics said on Sunday, beating market
expectations of 50.6.
"Recent pro-growth measures, which were stepped-up further
last Friday, may have lent a helping hand here," said Nikolaus
Keis at UniCredit.
China's manufacturing data bolstered market expectations
that the world's second-largest economy is regaining strength as
the government's pro-growth measures kick in.
Beijing stepped up policy fine-tuning in recent weeks and
has unveiled a slew of measures this year to help shore up the
economy, which dipped to an 18-month low in the first quarter
and is on track to post the weakest annual showing in 24 years.
China's cabinet announced new easing measures on Friday to
help lower funding costs and reduce operating burdens for
companies to give more support for the real economy, adding to
moves that included hastening construction of railways and
In South Korea, Asia's fourth-largest economy and one of the
leading manufacturing and export powerhouses, the HSBC/Markit
manufacturing gauge slid below 50 while trade data showed
In India, the manufacturing PMI edged up but came in
slightly below the median forecast in a Reuters poll.
Indonesia's PMI surged to a record high but hopes were tempered
after its trade balance slipped back into deficit in April after
two consecutive months of surpluses.
(Additional reporting by Andy Bruce in London, Adriana Nina
Kusuma and Nilufar Rizki in JAKARTA, Sumanta Dey in BANGALORE;
Editing by Richard Borsuk and Janet Lawrence)