Euro zone factory growth eases but strong demand enables price hikes: PMI

By Jonathan Cable

LONDON (Reuters) - Euro zone factory activity grew for the third month running in September as stronger demand enabled manufacturers to raise prices for the first time since mid-2012, a survey showed on Tuesday.

Although factories didn't quite maintain the pace of growth seen in August, survey compiler Markit said that the data showed manufacturers were lifting the region's economy and that even the bloc's periphery countries were seeing improved demand.

Markit's Manufacturing Purchasing Managers' Index (PMI) dipped to 51.1 last month from August's 26-month high of 51.4, in line with an earlier flash estimate.

A sub-index measuring output, which feeds into the wider composite PMI due on Thursday and seen as a good indicator of growth, eased to 52.2 from August's 27-month high of 53.4, just above the flash estimate of 52.1.

Readings above 50 signify expansions in activity.

"An improvement in euro zone manufacturing business conditions for a third straight month in September sends a reassuring signal that the sector is providing an all-important lift for a region that has been besieged by recession," said Chris Williamson, Markit's chief economist.

"But we must not get too carried away. Although signalling the best performance for over two years in recent months, the PMI slipped slightly compared with August and remains only just above the 50 'no change' level, indicating that this is still early days in what looks like a fragile recovery."

The troubled region emerged from its longest-ever recession in the second quarter and will probably only grow 0.2-0.3 percent per quarter through to the end of next year.

Inflation fell to just 1.1 percent in September, its lowest since February 2010, official data showed on Monday, giving the European Central Bank leeway to maintain its loose monetary policy to support the bloc's recovery.

But a subindex of prices charged rose to 50.3 from August's 49.6, the first time it has been above the break-even mark in more than a year. Incoming orders rising for the third month allowed firms to pass on rising input costs to customers.

(Editing by Hugh Lawson)