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London - Manufacturing in China shrank in July for the first time since March 2009 while it perked up in the eurozone, according to surveys that underscored the unevenness of the global economic recovery.
Global stock markets rose on Monday, viewing a declining Chinese manufacturing purchasing index as the signal of a desired slowdown rather than the harbinger of a slump, with strong results from two of Europe's top banks adding to the positive tone.
Investors also looked ahead to equivalent US factory data due later on Monday for further signs that the recovery in the world's biggest economy might be stalling, three days after second quarter output numbers there came in below forecasts.
Manufacturing surveys from other big emerging economies India and Russia served to bolster investor sentiment, with Asia's third-largest economy marking its 16th month of expansion and Russia's activity improving for the seventh month in a row.
In the 16-nation eurozone, factory activity accelerated led by Germany and Italy - but it slowed to its weakest in 10 months in France, illustrating how uneven the rebound is even within Europe.
HSBC's purchasing managers index (PMI) of Chinese companies showed government steps to slow bank lending and fight property speculation hit home, as manufacturing activity shrank for the first time since the depths of the global downturn in March 2009.
"This is the slowdown that the government 'wanted' - this is no new global crisis," said Roland Randall, strategist at TD Securities. "Targeted government restrictions and receding fiscal stimulus are to blame."
A similar government survey published on Sunday showed a marked dip in growth but no contraction.
European manufacturing was supported by a hefty jump in activity in No.1 economy Germany and British factories that saw expansion easing only slightly in July, although both countries saw slowing export order growth.
"It is apparent that the improvement signalled by the euro area PMI for July was almost entirely driven by a growth spurt in Germany," said Chris Williamson, chief economist at Markit.
On Monday, German retailer Metro - the world's 4th largest - said it was more confident about the economic recovery as it reported overall profits in line with forecasts.
But more worryingly, the PMI showed manufacturing growth in France slowed to a 10-month low, with little sign of a 27-month stretch of job losses abating.
Picking up the slack
US gross domestic product data on Friday showed growth slipped to 2.4% on an annualised basis in the second quarter from 3.7% in the first, heightening market concerns about growth there and leaving investors betting on China and the rest of Asia to pick up the slack.
The US manufacturing PMI is due from the Institute for Supply Management at 14:00 GMT. That ISM index is expected to drop to 54.1 in July from 56.2 in June.
"We are looking for any signs of disappointment in the US data to show that the US economic recovery is stalling. A figure above 50.0 but below forecast would send that signal," a London bond trader said.
Even in fast-growing Asia there are worries the recovery could lose traction if the authorities in Beijing pull on the reins too hard, hitting demand in what has become a top export market for many of China's regional peers.
"(But) we still expect the economy to grow by around 9% in the second half of 2010 and 2011, driven by resilient private consumption and continued investment demands of ongoing infrastructure and new public housing construction projects," said HSBC economists Qu Hongbin and Sun Junwei.
July car sales in Japan and South Korea also pointed to uncertainty about the global economy. While Japanese sales rose for an 11th straight month, South Korea's Hyundai Motor showed slowing foreign sales.
"Weakening demand from Europe and China is a bit of concern. But it's too early to say that demand will sharply reduce in the second half as current data is also affected by seasonal weakness," said Lee Hyung-sil, an analyst at Solomon Investment and Securities.
Major currencies barely budged after the release of the PMI surveys, while an index of Asian stocks outside Japan edged up following the Chinese report.
- Reuters
