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TOKYO (Reuters) - Japanese manufacturing activity grew at the fastest pace in more than three years and factory output grew at the fastest pace in almost four years in October, a survey showed on Thursday, in a sign that domestic demand remains firm before a sales tax increase next April.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 54.2 in October from 52.5 in September.
The index remained above the 50 threshold that separates contraction from expansion for the eighth consecutive month and reached the highest level since May 2010.
"October saw operating conditions in the Japanese manufacturing industry improve at the sharpest pace for over three years, driven by a surge in new orders," said Claudia Tillbrooke, economist at Markit.
"The data signaled that the latest expansion was largely demand driven and apparently unimpeded by Prime Minister Shinzo Abe's recent confirmation of a sales tax hike next April."
The output component of the October PMI index also gained to 57.7 from 53.8 in September to show the fastest growth in almost four years.
The index for new export orders fell to 53.1 from the previous month's 53.3.
The government will raise the national sales tax to 8 percent in April from 5 percent to pay for rising welfare costs. This has fuelled a burst in spending before goods become more expensive.
An increase in capital expenditure plans by Japanese companies has also helped support output of heavy machinery and manufacturing equipment.
Reporting by Stanley White; Editing by Robert Birsel