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China's factories spring to life as global trade reawakens

By Wayne Cole

SYDNEY (Reuters) - Activity in China's vast factory sector expanded at the fastest pace in 27 months in July, while industry surveys across Asia showed a pick up in export orders that hinted at a long-awaited revival in global trade.

China's official manufacturing purchasing managers' index (PMI) rose to 51.7 in July - the strongest since April 2012 and up from 51 in June, the National Bureau of Statistics said on Friday. Economists had expected a reading of 51.4.

The upbeat result was echoed in the HSBC/Markit China measure of manufacturing which climbed to an 18-month peak of 51.7, from June's 50.7. Anything above 50 in these surveys separates growth from contraction.

The reports added to evidence that Beijing's stimulus measures were gaining traction in the world's second-largest economy, and followed news that growth in the United States had rebounded from a winter lull.

"Taken literally, these PMIs signal an exceptionally strong start for third quarter growth in China," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.

"Each time the PMIs have printed around 51 to 52 in recent years, annual economic growth peaked at around 8 percent in the same quarter, and so we pencil that in as a starting point."

ORDERS FLOOD IN

China was not alone in scenting better times ahead.

India's factory activity expanded at its fastest pace in 17 months in July as firms responded to burgeoning new orders by increasing output.

The HSBC PMI, compiled by Markit, rose to 53.0 in July from 51.5 in June, its highest since February 2013.

"A flood of new orders from both domestic and external sources has led to a surge in activity," said Frederic Neumann, co-head of Asian economic research at HSBC.

"Details within the survey show that all monitored categories witnessed a rise in output and order flows."

Adding to the promising omens for global trade, South Korea reported exports to the United States expanded by over 19 percent in July, the fastest clip in nine months.

Taiwanese manufacturers, who do much of the work on Apple's iPhones, reported a robust improvement in overall business conditions in July, with output, total new orders and new export orders rising sharply.

All of which helped offset a disappointing reading from Japan, which has been struggling to recover from a tax-induced slump in consumer spending.

The final Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 50.5 in July, from a preliminary reading of 50.8 and a final 51.5 in June.

In a brighter sign, new export orders grew for the first time in four months, albeit modestly. Policymakers have been counting on an export rebound to help ease the pain from the sales tax hike, but shipments have been stubbornly weak.

PARSING PAYROLLS

For global financial markets, the quickening pulse in Asian trade was a welcome diversion from conflict in the Middle East and Ukraine, as well as Argentina's latest brush with default.

The U.S. factory survey from the Institute for Supply Management (ISM) due later Friday is also expected to tick up to 56.0 in July, which would be the best reading so far this year.

It will be preceded by the ever-influential U.S. payrolls report for July which analysts expect will show another healthy gain of 233,000 net new jobs.

The unemployment rate is seen holding at 6.1 percent, which might be welcomed by investors worried that further tightening in the labor market might lead the Federal Reserve to lift interest rates earlier than otherwise.

Those concerns were inflamed on Thursday when data showed U.S. labor costs rose by the most in more than 5-1/2 years during the second quarter.

They also got some of the blame for a sell off on Wall Street that saw the S&P 500 <.SPX> suffer its biggest daily loss since April.

(Editing by Kim Coghill)

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