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German manufacturing grows at fastest pace in two years in August - PMI

Worker assembles an engine for a new Porsche 918-Spyder sports car at the production line of the German car manufacturer's plant in Stuttgart-Zuffenhausen July 2, 2013. REUTERS/Michaela Rehle

BERLIN (Reuters) - German manufacturing grew at the fastest pace in two years in August thanks to robust demand at home and abroad, a survey showed on Monday, suggesting it will bolster an expansion in Europe's largest economy this quarter.

Markit's Purchasing Managers' Index (PMI) for the German manufacturing sector, which makes up around one-fifth of the economy, rose to 51.8 in August from 50.7 the previous month.

The reading was above the 50 mark that separates growth from contraction for the second month running, albeit slightly below the preliminary reading of 52.0.

"August's survey keeps the good news rolling in for the German manufacturing sector, with improvements in domestic sales and a rebound in export demand combining to generate the fastest expansion of output volumes since the middle of 2011," said Tim Moore, an economist at Markit.

"Overall, the latest figures provide a strong indication that manufacturing output will have a positive contribution to German GDP (gross domestic product) in the third quarter of 2013."

New export orders rose for the first time since February, driving the strongest gain in overall intake since May 2011.

A bastion of strength in the early stages of the euro zone's debt crisis, the German economy only narrowly avoided recession at the start of the year as a worsening global outlook diminished appetite for its products and willingness to invest.

But the economy grew at its strongest rate in more than a year in the second quarter. Recent data has added further evidence that it is bouncing back from its brief slowdown.

Business sentiment hit its highest level in 16 months in August and consumer sentiment remained close to its highest level in nearly six years, surveys showed last week.

Monday's PMI showed backlogs of work in the manufacturing sector increased at the fastest pace since May 2011.

"Increased production schedules could not prevent an accumulation of unfinished work for the first time in five months, which should stimulate job creation and investment spending as autumn approaches," Moore said.

The survey also showed cost burdens eased in August, continuing the downward trend of this year. Statistics Office data last week showed overall inflation easing in August to 1.5 percent.

(Reporting By Sarah Marsh; Editing by Hugh Lawson)