Manufacturing growth cooled around the world in June, with China hitting its slowest pace in more than a year and growth in the United States and Europe also easing -- further evidence that the global economic recovery is moderating.
A separate report on Thursday showed big Japanese manufacturers unexpectedly turned optimistic through mid-June, but analysts worried that the positive outlook failed to account for the recent turmoil in the stock market and a rise in the yen.
Commodity prices fell and stock markets slumped around the world after the surveys of purchasing managers added to concerns over the global outlook. In Europe, shares fell to a five-week closing low, while on Wall Street U.S. shares suffered losses for a fourth straight session.
Prices of copper and crude oil both fell, hit hard by a decline in a gauge of China's manufacturing sector to a level just slightly above the mark that indicates expansion. China is the world's biggest consumer of copper and the second biggest consumer of energy.
The fall in China's growth also helped drive Japanese shares to a seven-month closing low.
But economists played down worries of a precipitous slowdown in China -- which has powered the world economy in its recovery from recession -- and said the risk of a double-dip recession in industrialized Western economies remained low.
Fears about hard landing are overplayed, said Qu Hongbin, chief economist for China at HSBC, though he noted that government steps to cool the property market and curb bank lending appeared also to be effecting manufacturing.
NO HARD LANDING SEEN IN CHINA
HSBC's China Purchasing Managers' Index fell to a 14-month low of 50.4 -- just above the 50 mark that divides expansion from contraction -- from 52.7 in May, with both output and new orders dropping outright for the first time since the depths of the global downturn in March 2009.
Yet Qu predicted China would achieve around 9 percent growth in the second half, underpinned by massive investment and robust private consumption, after posting annual growth of 11.9 percent in the first quarter.
The Global Manufacturing PMI, produced by JPMorgan with research and supply management organizations, fell to 55.0 in June from 57.0 in May.
In the United States, the Institute for Supply Management said its index of national factory activity fell to 56.2 in June from 59.7 in May. While employment continued to rise in all of the major industrial regions covered by the survey, the pace of the increase slowed in June.
June was the second straight month of slowing U.S. growth and was the lowest reading since December. New orders and new export orders, the first components to respond to signs of economic weakness, both fell, while employment also ticked lower.
In the euro zone, manufacturing slowed in June to its weakest growth rate in four months. Spain, already suffering from weakness, posted its second straight monthly decline in output growth, offset by still-strong growth in Germany, Europe's largest economy.
Elsewhere in Asia, manufacturing growth in India eased from a two-year peak last month, while South Korean factories saw their pace of growth fall to a six-month low, similar surveys showed on Thursday.
Economists did not sound alarm bells about risks of a hard landing in Europe or the United States, although it appears clear that growth has likely peaked and interest rates will remain on hold into next year.
Looking at the United States, Mark Pawlak, market strategist at Keefe, Bruyette & Woods in New York, said: Our expectations have been that the economy is shifting to a lower gear. Small businesses are not hiring, and inflation is very low and is trending lower.
Mark Miller, international economist at Lloyds TSB Corporate Markets, warned that In a lot of Western economies you're going to see the pace of economic growth come off in the second half of the year. That's the way we're headed.
For continental Europe, exports are still a driver of growth and I don't know how much longer that can continue, he added.
In Britain, manufacturing output appeared in slightly better health than the rest of Europe, although it, too, slowed from a 15-year high clocked in May. Export orders growth dropped sharply, reflecting continental Europe's malaise.
Graphic on Global PMIs
A flurry of weak U.S. economic data in recent weeks and persistent worries about the fiscal health of peripheral euro zone countries have helped drag the MSCI world equity index <.MIWD00000PUS> down more than 10 percent since April.
Underscoring the uneven nature of the global recovery that is vexing investors, Russian manufacturing expanded in June at the fastest rate since April 2008.
And in Sweden, the Riksbank raised its main policy rate by 25 basis points to 0.50 percent on Thursday, citing a pick-up in the Swedish economy. It hiked its growth forecast for 2010, but cut its 2011 and 2012 outlooks.
Convinced that a sustained recovery from the global downturn will fuel inflationary pressures, central banks in Canada, Australia, Norway, India, Malaysia, New Zealand and Taiwan have already begun to raise interest rates.
(Writing by Edward Krudy, Ross Finley, and Kazunori Takada; Editing by Mike Peacock and Leslie Adler)