A recovery among European manufacturers, led by those in Britain, also gained pace, according to surveys released on Monday. A global factory index produced by JPMorgan showed manufacturing output around the world near a four-year peak.
Major economies have been mired in a deep recession, but government stimulus spending, particularly in China, led to a massive recovery around the middle of 2009 and has helped lift the world economy out of crisis.
December data indicate that the global manufacturing sector approaches 2010 on a positive footing, said David Hensley, a director at JP Morgan.
In China, the HSBC Purchasing Managers' Index rose to 56.1 in December, its highest level since the survey began in April 2004, from 55.7 in November.
The U.S. manufacturing sector expanded for a fifth straight month in December, with the Institute for Supply Management's national factory activity index at 55.9, its highest level in nearly four years, from 53.6 the prior month.
This is what we need in 2010 for a V-shaped recovery, said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.
After tumbling in late 2007 into its worst recession since the 1930s, the U.S. economy returned to growth in the third quarter of 2009, expanding at a 2.2 percent annual rate.
Manufacturing will continue to be an area that provides support to the U.S. economy, said Kevin Flanagan, fixed-income strategist for global wealth management at Morgan Stanley. We are looking to see if we can build on this recovery.
EUROPEAN FACTORY OUTPUT IMPROVES
In the UK, the CIPS/Markit purchasing managers' was still stuck in recession but hit a 25-month high of 54.1 last month, topping forecasts for a rise to 52.0, while output in the 16-nation euro zone expanded at its fastest pace in 27 months.
Euro zone growth was boosted by activity in Germany, the bloc's biggest economy, which expanded at its fastest pace since May 2008, while activity in France and Italy also ticked up from November.
It supports other evidence that the economy is continuing to expand but the recovery is going to be relatively slow and we are not going to see anything particularly dramatic, said Ben May, economist at consultancy Capital Economics.
A reading above 50 indicates manufacturing activity is expanding, while a level below 50 suggests contraction.
The euro zone broke out of recession in the third quarter of last year, although how sustainable the recovery is remains in doubt given still falling investment and high unemployment.
For a graphic comparing global PMIs see http://r.reuters.com/beb69g
FOCUS ON INTEREST RATES
Manufacturing activity hit a seven-month peak in India last month and also rose in South Korea, while Japan's factory sector picked up for the first time in three months in December.
For a graphic on China, India and South Korea PMI see http://r.reuters.com/heb69g
That put monetary policy into focus in many economies, with China's rapid rate of growth raising some concern about rising inflation, analysts said.
Chinese authorities have pledged greater policy flexibility this year, which the market has interpreted as a pledge to gradually shift to a tightening bias after taking only small steps until now to wind down ultra-loose monetary policy.
The Bank of Korea reviews monetary policy on Friday, while the next scheduled meeting of the Reserve Bank of India is on January 29.
The Bank of Korea can afford to stay on hold this week, but we stick by our call that interest rates will go up before the end of this quarter, mainly to ease worries over household lending growth and asset bubbles, said Frederic Neumann, senior Asia economist at HSBC.
The U.S. Federal Reserve has so far not deviated from a stated intention to hold rates low for an extended period, which markets have interpreted to mean no rate hike until at least the second half of 2010.
But Torsten Slok, senior economist at Deutsche Bank in New York, said the strong U.S. data has to change the Fed-speak and Fed body language going forward.
(Additional reporting by Simon Rabinovitch in Beijing, Anurag Joshi in Mumbai and Yoo Choonsik in Seoul; Editing by Dan Grebler)