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October factory activity edges up, growth still weak: Markit

NEW YORK (Reuters) - Manufacturing improved slightly in October but slow growth and economic uncertainty suggested the sector's recent struggles may persist over the final months of 2012, an industry survey showed on Wednesday.

Financial information firm Markit said its U.S. "flash," or preliminary, Purchasing Managers Index for the manufacturing sector edged up to 51.3 this month from 51.1 in September. A reading above 50 indicates expansion.

A modest rise in output helped boost business conditions in the sector, which suffered its weakest quarter in three years during the July-to-September period.

But fewer orders from domestic clients and a fifth straight monthly decline in overseas demand for U.S. goods indicates manufacturing was acting as a drag on growth and employment, said Markit chief economist Chris Williamson.

"Purchasing managers' report that the key to the ongoing weakness remains uncertainty among customers in export markets, notably Europe and Asia," he said.

"However, demand at home remains subdued, possibly reflecting clouds hanging over the economic outlook due to the upcoming elections and worries about fiscal policy."

Opinion polls show U.S. President Barack Obama and Republican challenger Mitt Romney in a dead heat ahead of the November 6 presidential election.

Business leaders have said a lack of clarity on future tax policy was discouraging firms from making big decisions on employment or investment and suppressing overall growth.

The election may not clear things up, either.

When it's over, Congress will have less than two months to decide whether it will let $600 billion of scheduled tax increases and spending cuts take effect as planned on January 1.

Economists fear all this uncertainty has made it harder for firms to hire new workers. The U.S. manufacturing workforce increased slightly in October, though the pace of hiring was the second slowest recorded in almost two years.

Fuel, energy and raw material costs drove up overall input costs this month, with the rate of inflation the steepest since April. But there was very little pass-through to consumers.

Average selling prices rose only slightly, Markit said, and some firms said increased competition limited overall gains.

The "flash" reading is based on replies from about 85 percent of the U.S. manufacturers surveyed. Markit's final reading will be released on the first business day of the following month.

(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)

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