Manufacturers from several nations delivered upbeat news on Tuesday, indicating a recovery from the deepest global recession since World War Two is gradually gaining traction.

In the United States, the factory sector expanded in August for the first time in more than a year and a half. The return to growth, while anticipated, was more robust than expected.

China's manufacturers also provided evidence of a sustained recovery, while European factories offered signs of stability if not an across-the-board rebound.

The Institute for Supply Management's closely watched barometer of U.S. factory activity jumped to 52.9 from 48.9, besting the median forecast of 50.5.

A reading above 50 shows growth in the nation's factory sector. The last time the index was above that marker was in January 2008, and August's reading was the strongest since June 2007.

The national survey was the icing on the cake after a series of U.S. regional business barometers came in stronger than expected in the past few weeks.

The ISM is an important benchmark that investors look at when trying to sense the trend of the economy, said Linda Duessel, market strategist at Federated Investors in Pittsburgh.

Also on Tuesday, pending home sales in the United States, or sales of previously owned houses, hit a two-year high in July, suggesting drastic price cuts and a more stable economy have started to entice buyers back into the market.

Both reports are encouraging readings. I'm particularly encouraged by new orders and the spread between new orders and shipments in the ISM report, said Jonathan Basile, economist at Credit Suisse in New York.

Still, Norbert Ore, chair of the manufacturing business survey committee, at ISM, warned the manufacturing sector's recovery might not create many new jobs for now.

Getting the U.S. unemployment rate down substantially from its current 9.4 percent is seen as key to a sustained economic recovery -- especially once the impact of huge government stimulus spending has run its course.

PATCHINESS CONTINUES

China's sprawling manufacturing sector kept up its steady recovery in August, hitting a 16-month high according to the China Federation of Logistics and Purchasing. New orders, output, imports and employment all rose.

But despite the positive signs from China, which some observers hope will power economic recovery by maintaining its appetite for imports, global performance remains patchy in what seem to be the early stages of recovery.

Indian manufacturers posted their slowest growth in five months. Factory activity shrank in Britain, Italy and Spain in August as those countries lagged France and Germany, the driving forces behind Europe's recovery. For Spain and Italy, rates of contraction actually accelerated. [ID:nL1586760].

Economists say euro zone growth could be hampered by high unemployment and any winding up of the trillions of dollars governments have injected into the economy to spur the recovery.

Euro zone unemployment still seems likely to rise markedly higher, thereby posing a serious threat to growth prospects over both the near and medium term, said Howard Archer, an analyst at IHS Global Insight.

U.S. regional surveys showed employment remained weak, in line with fears of a jobless recovery, though the employment component of the ISM offered a flicker of hope, rising to 46.4 in August to its highest level since August 2008.

Euro zone manufacturing activity shrank less than expected in August, with the Markit Eurozone Manufacturing Purchasing Managers Index rising to 48.2 from 46.3 in July -- still below the 50 mark that divides growth from contraction.

In eastern Europe, manufacturing in Poland and the Czech Republic reached the recovery threshold but industrial sentiment in Hungary slumped.

Despite the patchy performance, analysts said the eurozone's economy should grow in the third quarter.

In the region's biggest economy, Germany, unemployment fell for a second straight month, but jobs have been supported by government measures designed to prevent mass layoffs before an election on Sept. 27.

SCRAPPING CARS BOOSTS SALES

Analysts say recovery in Europe is vulnerable if governments wind down stimulus spending, aimed at spurring lending to companies and sales of goods, too soon.

Data for European August car sales have shown a bounce from incentive schemes giving drivers cash bonuses for trading in old cars for newer, less polluting models.

French new passenger car sales rose 7 percent in August to 110,607 units, carmakers' association CCFA said. Still, sales of light utility vehicles, which are not eligible for payouts, plunged.

Companies in Europe and the United States have largely reported better than expected results recently, suggesting that the depth of recession has passed.

The banking sector, where the crisis began when a boom in high-risk debt went sour, has mostly recovered, but several leaders have suggested banks rein in bonuses and plan to raise the issue at the Sept. 4-5 meeting of G20 leading developed and emerging nations.

German Chancellor Angela Merkel said lending conditions will have to tighten once the crisis is over.

The money supply will have to be reduced, she told Bayerische Rundfunk radio, adding that exit strategies should be implemented when the economy has regained the levels it saw before the crisis.

In an interview with the Financial Times before the G20, British Prime Minister Gordon Brown called for greater international coordination in ending the stimulus. 

 (Editing by Todd Eastham)