Manufacturing in China shrank in July for the first time since March 2009 while it perked up in the euro zone, according to surveys that underscored the unevenness of the global economic recovery.
Global stock markets <.MIWD00000PUS> rose on Monday, viewing a declining Chinese manufacturing purchasing index as a signal of a desired slowdown rather than a harbinger of a slump.
Investors also looked ahead to the equivalent U.S. data due later on Monday for further signs that the recovery in the world's biggest economy might be stalling, three days after second quarter output numbers there came in below forecasts.
Manufacturing surveys from two other big emerging economies served to bolster investor sentiment, with India marking its 16th month of expansion and Russia's activity improving for the seventh month in a row.
The euro zone's manufacturing purchasing managers index (PMI) rose higher above the 50 mark that separates growth from contraction to 56.7 in July from 55.6 in June, led by Germany and Italy.
But manufacturing growth slowed to its weakest in 10 months in France, illustrating how uneven the rebound is even within Europe.
HSBC's PMI of Chinese companies showed government steps to slow bank lending and fight property speculation hit home, as the headline index dipped below the 50 mark for the first time since the depths of the global downturn.
This is the slowdown that the government `wanted' -- this is no new global crisis, said Roland Randall, strategist at TD Securities. Targeted government restrictions and receding fiscal stimulus are to blame.
A similar government survey published on Sunday showed a marked dip in growth but no contraction.
European manufacturing was supported by a hefty jump in activity in No.1 economy Germany and British factories that saw expansion easing only slightly in July, although both countries saw slowing export order growth.
It is apparent that the improvement signaled by the euro area PMI for July was almost entirely driven by a growth spurt in Germany, said Chris Williamson, chief economist at Markit.
On Monday, German retailer Metro
But more worryingly, the PMI showed manufacturing growth in France slowed to a 10-month low, with little sign of a 27-month stretch of job losses abating.
PICKING UP THE SLACK
Business and consumer sentiment surveys in Europe have been largely positive over the past month, a trend underpinned on Monday by forecast-beating earnings from two of the continent's heavyweight banks, HSBC
But the outlook for the United States seems less certain, marking a shift in expectations between the two regions that is reflected in recent comments from their top central bankers.
Two weeks ago, European Central Bank President Jean-Claude Trichet urged industrial countries to cut public spending immediately to consolidate the fiscal recovery.
But his U.S. Federal Reserve counterpart, Ben Bernanke, has instead talked of the room for further stimulus to counter any slowdown by pushing borrowing costs lower.
U.S. economic slipped to an annual rate of 2.4 percent in the second quarter from 3.7 percent in the first, official figures showed on Friday, heightening market concerns about growth there and leaving investors betting on China and the rest of Asia to pick up the slack.
The ISM U.S. manufacturing PMI is due from the Institute for Supply Management at 1400 GMT. That index is expected to drop to 54.1 in July from 56.2 in June.
We are looking for any signs of disappointment in the U.S. data to show that the U.S. economic recovery is stalling. A figure above 50.0 but below forecast would send that signal, a London bond trader said.
Even in fast-growing Asia there are worries the recovery could lose traction if the authorities in Beijing pull on the reins too hard, hitting demand in what has become a top export market for many of China's regional peers.
July car sales in Japan and South Korea also pointed to uncertainty about the global economy. While Japanese sales rose for an 11th straight month, South Korea's Hyundai Motor <005380.KS> showed slowing foreign sales.
Major currencies barely budged after the release of the PMI surveys, while an index of Asian stocks outside Japan <.MIAPJ0000PUS> edged up following the Chinese report.
(Writing by Andy Bruce and Tomasz Janowski; Editing by Ross Finley and John Stonestreet)