Manufacturing activity continued to power ahead around the globe in January as economies pull out of deep recessions but a widening divergence in the euro zone will worry policymakers, data showed on Monday.
China's vast manufacturing industry expanded at a near record pace, Britain saw activity grow at its fastest rate in 15 years, India is leaping ahead after a slow patch and South Korea and Australia also saw improvement.
But while the euro zone manufacturing sector grew at its fastest pace in two years in January there is a widening divergence between struggling Spain, Greece and Ireland compared to buoyant Germany, France and Italy.
"That could hinder the recovery in the euro area as a whole — and raises the chances of the euro group having to bail out members who cannot cope with their fiscal difficulties," said Colin Ellis at Daiwa.
Analysts see a one in five chance Greece, set to become the 16-nation bloc's most indebted member this year, will need to seek a bailout and say Ireland, Spain and Portugal are the economies most likely to suffer a similar setback in investor confidence.
CHINA BOUNCE
A pair of surveys showed on Monday that China's vast manufacturing industry expanded at close to record pace last month as the world's third-largest economy continues to lead the global recovery.
India, another emerging power that avoided recession and is coming out strongly from a soft patch, saw its factory sector expand at its fastest clip in nearly 18 months.
Russia in January recorded its second expansion in activity in the last 18 months.
South Korean and Australian manufacturing surveys showed improvement too, in part feeding off China's growth burst in the past quarter that brought it back to its cruising speed of more than 10 percent.
In the United States, the Institute of Supply Management survey due at 1500 GMT is also forecast to show a pick-up in growth, but only compared with a downward revised December figure. The index is seen edging up to 55.2 from 54.9, though last month's original reading was at 55.9 points.
With interest rates at record lows and budgets deficits at multi-year highs after costly crisis-fighting efforts, investors are keen to see any signs that the recovery spurred by massive policy stimulus can carry forward without more public aid.
COSTLY RESCUE
The cost of preventing the global recession from turning into depression will be evident in U.S. budget estimates due at 1500 GMT. The White House will predict a record $1.6 trillion deficit for the fiscal year 2010, a congressional source told Reuters.
Beijing's steps to cool buoyant credit growth to prevent overheating also fanned concerns that they may prove too heavy-handed and derail the upturn at a time when other big economies have yet to regain their momentum.
Chinese bank lending slowed sharply in the final 10 days of January, according to a newspaper report, but there was little evidence yet in Monday's data that the crackdown was hurting activity.
An index based on an official survey of purchasing managers last month eased from a 20-month high in December but remained firmly in expansionary territory, while an index derived from a companion poll by HSBC scaled an all-time high.
Both reports also showed a further rise in cost pressures, leaving the authorities little choice but to keep tightening policy after they have steered debt yields higher at auctions, raised banks' reserve requirements and reined in lending.
Despite growing concerns that Beijing's tightening campaign will sap demand for South Korean exports, January's purchasing managers' survey marked the fastest manufacturing expansion in more than two years for South Korea, largely due to still rising export orders.
Australia's manufacturing survey also showed expansion last month and a jump in new orders suggested a further pick-up ahead even as it remains the only G20 economy to have started raising interest rates to cool mounting price pressures.
