U.S. jobs woes add to global factories gloom

NEW YORK/LONDON (Reuters) - Factories are struggling in countries ranging from China to Europe to the United States, while U.S. unemployment hit a four-year high, raising concerns that economies around the globe could slip into recession, according to data released on Friday.

In the United States, the world's largest economy, the jobless rate jumped to 5.7 percent in July as employers cut jobs for the seventh straight month, which is likely to weaken U.S. consumers' appetite for global goods.

This could deepen the fall in demand already hurting manufacturers around the world, which are also struggling with high commodities prices. It also puts central banks in a bind over interest rates as they worry about the opposing problems of elevated inflation and low growth.

Reports from China, the euro zone, Germany, Britain and Sweden pointed to a rapid slowdown that is leaving few unscathed a year after the start of a credit crunch, which still has world markets in its clutches.

In Europe, where some of its most fragile economies like Italy and Spain are flirting with recession, surveys of manufacturing companies published on Friday suggested that tougher times lay ahead.

"There is a risk that the euro zone could fall into recession," said Juergen Michels, an economist with Citigroup in London.

Even China, the world's fourth-largest economy that has been booming for years, saw manufacturing activity stumble in July.

The Institute for Supply Management said U.S. factory activity managed to hold steady last month, a decent achievement given the economic headwinds.

But there were signs that weakness in the global economy could be starting to hurt exports, one of the few bright spots for the United States this year.

"If you look at ISM and the unemployment number together, it suggests an economy that is, at best, stuck in neutral," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Stocks were lower on Wall Street and ended down in Europe and Tokyo. The dollar gained against the euro. U.S. government bonds were mixed.

INACTIVE

Global manufacturing activity slipped to its lowest level in over five years in July, dragged down by sharp falls in Britain, the euro zone and Japan, while prices soared to record highs, a survey showed.

The JP Morgan Global Manufacturing PMI, compiled with research and supply management organizations, fell to 49.0 in July from 49.5, its lowest level in over five years. It was the second month in a row that the index remained below the 50.0 mark dividing growth from contraction.

China's manufacturing sector contracted in July for the first time since the 2005 launch of an official monthly survey, an indication that weaker exports are taking a toll on the economy.

President Hu Jintao said sustaining strong growth is now an economic priority -- along with containing price rises, which until now has been the Chinese authorities' central concern through years of double-digit economic growth.

Major central banks this week extended programs to inject cash into money markets, but the European Central Bank and the Bank of England, as well as the U.S. Federal Reserve are not expected to shift interest rate policy any time soon.

The Chinese authorities, which many times last year hiked interest rates to slow an overheating economy, on Friday raised banks' lending quotas by 5 percent in a move to prop up the economy.

In Britain, which has been struggling with the early stages of a property market bust, rapidly slowing growth and soaring inflation, policy-makers were dealt perhaps the worst possible combination of data from the manufacturing sector on Friday.

Activity contracted at its fastest pace in a decade while factories ramped up their prices at the fastest pace since the CIPS/Markit monthly survey began recording them during the boom times of late 1999.

"Recession here we come!" quipped Alan Clarke, UK economist at BNP Paribas.

Even in Germany, where the country's traditionally strong export sector has proved surprisingly resilient in the face of the record high euro currency, domestic demand appears to be falling away and will not be able to prop up growth if exports flounder.

German June retail sales fell a sharp 2.8 percent on the month according to Bundesbank figures.

In Scandinavia, the Swedish economy did not grow at all in the second quarter, confounding forecasts for a modest 0.3 percent expansion and throwing two more expected interest rate hikes from the Riksbank into question.

The Swedish manufacturing PMI also registered contraction for the first time since 2003.

(With reporting by bureaus in Asia, Europe and North America; Editing by Leslie Adler)