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U.S. manufacturing expands, but may be losing speed

Chevrolet Cruze chassis move along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011. REUTERS/Aaron Josefczyk

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. manufacturing output rose modestly in October as motor vehicle production fell for a third straight month, suggesting some slowing in economic growth at the start of the fourth quarter.

But growth remains relatively sturdy, with other data on Monday showing a rebound in factory activity in New York State this month.

"While the solid outlook for the U.S. economy remains, there are, however, mounting downside risks to growth this quarter," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

Factory production rose 0.2 percent last month, the Federal Reserve said. September's increase in factory output was revised down to 0.2 percent from 0.5 percent.

Economists said based on October's manufacturing output gain, fourth-quarter gross domestic product was running at just over a 2 percent annual pace. The economy grew at a 3.5 percent rate in the third quarter.

A 1.2 percent fall in motor vehicle production restrained manufacturing output last month. There were also drops in the production of nonmetallic mineral products, as well as electrical equipment, appliances and components. Motor vehicle output fell 1.9 percent in September.

In a separate report, the New York Federal Reserve said its Empire State general business conditions index rose to 10.16 in November from a reading of 6.17 in October. A reading above zero indicates expansion.

New orders rebounded strongly, but factory employment gauges dropped, taking some shine off the report.

"Even with the improvement in the November survey, it still points to some moderation in manufacturing activity between the third and fourth quarters," said Daniel Silver, an economist at JP Morgan in New York.

Businesses, however, remain upbeat about the future. An index for future business hit its highest level since January 2012 and a measure of capital expenditure posted its highest reading in more than two years.

Despite signs of cooling in manufacturing, the U.S. economy remains a bright spot in a world of slowing or contracting growth.

October's meager manufacturing output gain was offset by a 0.9 percent fall in mining production as oil and gas well drilling fell for the first time since February, which some economists linked to falling oil prices.

Utilities production also fell 0.7 percent, against the backdrop of mild temperatures. Weak mining and utilities left overall industrial production down 0.1 percent in October after a 0.8 percent increase in September.

(Reporting by Lucia Mutikani; Editing by Meredith Mazzilli and Andrea Ricci)