Manufacturing growth slowed across the globe in May but there was some relief in the United States where there was scant evidence of any impending slump caused by Europe's debt crisis.
Purchasing managers surveys in China and the euro zone showed local economies grew at more sluggish pace. That stoked fears China may become less of a force for growth, while European economies could falter due to weakening domestic demand as governments cut swelling deficits.
In the United States, the headline number showed a slight slowdown but new orders and exports were stable, calming fears that Europe's crisis has started to drag on the world's largest economy. Employment numbers improved, a positive sign ahead of the government's payrolls report on Friday.
"There has been a slowdown in growth globally and in the euro zone there is subdued domestic demand due to the austerity measure implemented in some countries," said Luigi Speranza at BNP Paribas.
Global stocks headed higher after the U.S. data, with European shares closing up. But much of the bounce in U.S. equities had faded by the afternoon as investors continued to worry about the fall-out from Europe's crisis.
PURCHASING MANAGERS IN THE LIMELIGHT
The May global Purchasing Managers' Index surveys are being closely watched by investors because they could shed light on how the debt crisis in the euro zone is impacting the world economy.
Finance ministers and central bank chiefs from the world's leading developed and developing economies meet this week in South Korea and will discuss how Europe's debt crisis could derail the global economic recovery.
In the United States, the Institute for Supply Management said its index of national factory activity slipped to a reading of 59.7 in May from 60.4 in April, but it was still the 10th month the index was above 50, the level that signals expansion.
The index's employment component rose to a six-year high, while the new orders was unchanged at 65.7, and exports increased to 62 in May from 61 the previous month.
"We still remain at a remarkably high level," said Tom Porcelli, U.S. economist at RBC Capital Markets in New York. "It's still consistent with an expansion in manufacturing, which we still expect will move along at a pretty decent clip."
A separate report in the United States showed construction spending rose unexpectedly in April, recording its largest monthly increase in nearly 10 years.
China's official purchasing managers' index released on Tuesday fell in May to a reading of 53.9 from 55.7 in April, just below market expectations but still the 15th straight month of growth.
A companion index compiled by British research firm Markit for HSBC dropped to an 11-month low of 52.7 in May from a downwardly revised 55.2 in April. [ID:nTOE65001Z]
Because China has been an engine of global growth as the world emerges from its deepest recession in decades, a sharp slowdown in China could deal a blow.
"The result indicates weakening of momentum in the manufacturing sector and confirms our expectation that GDP growth will slow sharply in Q2 and continue decelerating in Q3," Dariusz Kowalczyk, SJS Markets chief investment strategist in Hong Kong, said.
In the euro zone, manufacturing activity expanded in May at a considerably more sluggish pace than April's 46-month high. Britain managed to buck the trend, with the index holding at April's 15-year high.
The Markit Eurozone Manufacturing Purchasing Managers' Index for May sank to 55.8 from 57.6 in April, down from an earlier flash estimate of 55.9. In Britain the index was unchanged from April at 58.0.
The 16-nation euro zone has been hit by waves of insecurity churned up by the region's debt crisis and fears that troubles in Greece may spread to other peripheral economies.
Separate data from the euro zone showed unemployment, a lagging indicator, inched up in April to a near 12-year high of 10.1 percent. [ID:nBRQ009874]
Canada on Tuesday became the first among the Group of Seven richest countries to hike its key interest rate after the global recession, but said the European debt crisis made its next move highly unpredictable. [ID:nN01103957]
Data in other Asian countries was mixed. India's PMI surged to a 27-month high of 59.0 in May, the 14th month the indicator has shown expansion.
The move was mirrored in Japan where the manufacturing sector grew in May at its fastest pace in almost four years after a slowdown in April.
