Factories in the United States, Europe and Asia cranked up production last month, suggesting recovery from a deep recession was taking root in economies around the globe.

The U.S. manufacturing sector grew at its fastest pace in more than five years last month and activity in Europe bounced higher, with a cheaper euro helping stimulate exports.

UK manufacturing expanded at its fastest pace since 1994, while China's vast industrial sector also grew in March.

U.S. stock indexes rose along with equity markets across Europe and Asia as the data bolstered hopes the worst global downturn in generations was ending.

Investors are keen for more evidence the recovery is gaining momentum to justify optimism that has pushed U.S. and Japanese equities to 18-month highs.

We had a slew of nice upside surprises from manufacturing data around the world, said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. The numbers were not out of the ballpark but were all stronger than expected, so that's a good start to the month.

In the United States, the Institute for Supply Management's manufacturing index grew for an eighth straight month, with the sector expanding at its fastest pace since July 2004, more swiftly than economists had expected.

Though the index's employment component slipped slightly, the data still boosted spirits ahead of Friday's government payrolls report. Analysts expect it to show the economy added 190,000 jobs in March after cutting 36,000 in February.

This is unmitigated good news for the manufacturing sector, which is good news for the progress of the general recovery, said Pierre Ellis, senior economist at Decision Economics in New York.


Manufacturing in the euro zone grew faster than previously thought, with Markit's Purchasing Managers' Index (PMI) for the region jumping to 56.6 in March from 54.2 the month before.

In Germany, the 16-country euro zone's biggest economy, manufacturing activity grew at a rate not seen in almost 10 years. France, the second biggest, saw its manufacturing sector expand at a pace not seen since November 2006.

Across the channel, British manufacturing activity grew last month at its fastest rate since October 1994, when the economy was also recovering from a deep recession, but firms continued to cut jobs in a bid to reduce costs.

We are seeing world trade booming, it's recovering very sharply. Emerging markets were driving this at the beginning but developed markets are also now catching up, said Nick Kounis, economist at Fortis Bank in Amsterdam.

China, the world's biggest emerging market, saw its official purchasing managers index rise in March, beating expectations and pointing to brisk first-quarter growth for the world's third largest economy.

The headline PMI from a parallel HSBC/Markit survey rose to 57.0, the third-highest level in the six-year history of the survey, from 55.8 in February. A reading above 50 means activity is expanding.

Strong export growth and continued factory sector expansion points to an acceleration in industrial production and likely over 11 percent GDP growth in the first quarter, Qu Hongbin, chief economist for China at HSBC, said in on Thursday.


Strong demand from China is also proving a boon for its neighbors, particularly since Asia's major Western export markets have been far slower to recover.

South Korea reported March exports rose 35.1 percent from a year earlier, beating an expected 32.9 percent rise.

Japan has also seen a steady recovery of exports, driven largely by sales to China, and the Bank of Japan's tankan survey Thursday showed morale among big manufacturers, the main beneficiaries of the export rise, at its highest level since September 2008.

Such growth, though, is likely to push up prices, and with inflation pressures rapidly accumulating, this increases the risk of interest rate hikes in the coming months, HSBC's Qu said.

Australia, India and Malaysia have already started hiking rates, and dealers see a 59 percent chance the U.S. Federal Reserve will follow suit before year-end.


But while China is back on course for the high single-digit percentage growth it saw before the crisis, there are still doubts about the strength of a European recovery.

German retail sales fell more than expected in February, suggesting private consumption will drag on an export-led recovery that has benefited from a weaker euro.

The European Central bank is not expected to raise rates from record lows until early 2011, while economists think the Bank of England will not nudge rate higher until late 2010.

Debt-ridden euro zone member Greece saw its manufacturing sector contract at a sharper rate.

(Additional reporting by Zhou Xin, Langi Chiang and Alan Wheatley in Beijing, Yoo Choonsik in Seoul and Stanley White in Tokyo; editing by Andrew Hay)