U.S. Markets closed

U.S. manufacturing demand, China services sector suggest growth

Technician Willie Holley, 26, reworks the caliber movements of Shinola watches being assembled at its manufacturing location in the New Center Taubman building in Detroit, Michigan July 17, 2013. REUTERS/ Rebecca Cook

NEW YORK (Reuters) - Demand picked up in the U.S. manufacturing sector in August, data showed on Tuesday, which together with a report showing steady growth in China's services sector added to signs of strength in the world's two biggest economies.

Overall growth in the U.S. manufacturing sector eased in August as output grew at the slowest pace in 10 months. But a pickup in new orders, along with a drop in inventories, pointed to faster growth ahead.

Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index fell to 53.1, below July's reading of 53.7 and the initial August reading of 53.9. A reading above 50 indicates expanding activity.

"At the same time, inventories of finished goods showed the largest fall since 2009 as some companies reported that demand often exceeded production," said Markit chief economist Chris Williamson. "Factories will need to ramp up production to replace depleted inventories given this order book growth."

In China, domestic demand helped the services sector grow steadily in August, suggesting government measures have started to steer Asia's biggest economy out of its longest slowdown.

The Chinese non-manufacturing purchasing managers' index (PMI) dipped slightly to 53.9 last month from July's 54.1 to match June's reading, the National Bureau of Statistics said.

"The rise in new orders set a good foundation for growth in the next few months," Cai Jin, a vice head of the China Federation of Logistics and Purchasing, which compiles the index on behalf of the National Bureau of Statistics, said in a statement.

Faster global growth could help persuade policymakers at the U.S. Federal Reserve to slow their massive bond purchase program soon.

The bank is now buying $85 billion per month in Treasuries and mortgage-backed securities, but policymakers have hinted at exiting from the strategy as the U.S. economy grows strong enough to stand on its own.

A more robust U.S. economy as well as faster expansion in China, a major U.S. trading partner and engine of global growth, could nudge the Fed closer to a pullback as soon as its next meeting on September 17-18.

But with U.S. data still often painting a mixed picture, that potential September exit could yet change.

Data earlier this week showed expanding Chinese factory activity. Both the private Markit/HSBC PMI and PMI data published by the National Bureau of Statistics notched readings above 50 in August, boosting hopes China may have avoided a sharp slowdown.

European factory data also pointed to growth in August, including faster-than-expected manufacturing growth in Britain.

The survey was especially welcome after a long economic stagnation in the U.K., which earlier this year flirted with a triple-dip recession.

(Reporting by Luciana Lopez; Editing by Chizu Nomiyama)