Asian factory output remained weak in December, with Chinese manufacturers narrowly avoiding contraction and South Korea's industrial production shrinking the most in almost three years, while Europe data this week is expected to point to a recession.

India, however, saw strong factory activity in December that defied recent weakness in Asia's third-largest economy.

Meanwhile, housing and jobs data from the United States last week showed the world's largest economy gaining momentum heading into the New Year.

Export-reliant Taiwan saw its manufacturing sector contract for the seventh straight month, according to the HSBC Taiwan Purchasing Managers' Index for December, but the rate of decline slowed.

Although production and new business inflows are still declining, the pace of deterioration eased across the board for the second straight month, HSBC economist Donna Kwok said of the Taiwan data on Monday.

Half a year of inventory de-stocking means that a small boost for production could be around the corner soon, she said.

Worries have grown that China, the world's second-largest economy, is headed for sharply slower growth, undermining its ability to offset looming recession in debt-laden Europe and an uncertain U.S. recovery.

China's official purchasing managers' index, released Sunday, edged up to 50.3 in December from 49 in November.

Similar data released on Friday -- the HSBC Purchasing Manager's Index, designed to preview the state of Chinese industry before official output data are published -- showed manufacturing inched up to 48.7 in December from a 32-month low of 47.7 in November, but fell short of the flash reading of 49.

This added to expectations that Beijing will take policy measures to support growth.

China is widely expected to announce a cut in the required ratio of reserves it demands commercial banks hold, after cutting it by 50 basis points on November 30 from a record high of 21.5 percent.

That was the first cut in RRR for commercial lenders in three years, a policy shift after a vigorous tightening campaign to curb inflation which hit a three-year high of 6.5 percent in July.


Graphic: Asia PMI -



India, with its soaring inflation and dramatic slowdown in growth in recent months, may see an end to the central bank's long-running policy tightening.

The country's manufacturing activity surged to a six-month high in December, helped by a spike in factory output and new orders.

The HSBC Markit India Manufacturing PMI jumped to 54.2 from 51.0 in November, its biggest monthly rise since April 2009. The index has stayed in growth territory for 33 months now. The PMI came closest to suggesting a contraction in September when it dipped to 50.4.

Official data released last month showed industrial output in India plunged 5.1 percent in the year to October, its steepest fall since March 2009, raising fears the economy might be heading for a hard landing.

The Indian economy is facing strong headwinds this year as the euro zone crisis drags on and Reuters polls suggest the central bank will ease monetary policy by June to counter this, despite stubbornly high inflation.

From here on, we could expect reversal of monetary tightening. But it's difficult to say when that will take place and in what shape it will roll out, Reserve Bank of India Governor Duvvuri Subbarao told the BBC, reiterating the view spelled out by the RBI at its policy review last month.


In Indonesia, inflation in December eased to a 21-month low of 3.79 percent, giving the central bank more room to cut interest rates again if needed next week to shield Southeast Asia's biggest economy from the global slowdown.

Still, Indonesia's central bank is expected to hold rates steady at its January 12 meeting despite the lower-than-expected figure.

The picture was far gloomier in South Korea, where cooling global demand squeezed manufacturing and kept the HSBC/Markit PMI survey showing contraction for a fifth straight month in December.

The waves (of economic difficulty) will likely be much higher this year. The global economy is not in a temporary slump but has entered a new era of low growth, President Lee Myung-bak said, adding the government would bring down inflation close to 3 percent. It averaged 4 percent in 2011.

Singapore is also expected to report on Tuesday that GDP shrank in the fourth quarter from the third.

Manufacturing data from Europe this week is also expected to be weak, with a Reuters poll last month forecasting Eurozone composite PMI at 47.9 for December, an improvement from the 47 in November but still below the 50 mark that separates growth from contraction.

(Reporting by Yati Himatsingka in Bangalore; Kevin Yao in Beijing; Christine Kim and Yoo Choonsik in South Korea; Jonathan Standing in Taiwan; Editing by Kavita Chandran)