Nov. 3 (Bloomberg) -- Europe's manufacturing industry, which accounts for a fifth of the region's $8 trillion economy, expanded at the fastest pace in 15 months in October, boosted by faster economic growth in the U.S. and a recovery in Germany. An index based on a survey of about 3,000 companies compiled for London-based Group Plc by NTC Research rose to 51.3 in October from 50.1 in September, the fourth straight gain and the highest reading since July 2002. A reading above 50 indicates an expansion. European stocks held gains after the report.
Business confidence in Germany, Europe's largest economy, rose to a 32-month high in October, the Ifo institute said last week. Siemens AG, Germany's biggest engineering company, said demand for factory-automation equipment in the U.S. is recovering. The U.S., the world's largest economy, expanded at the quickest pace in almost two decades in the third quarter. ``Germany is very much the powerhouse, and there are beginning to be signs of improvement there,'' said Christopher Bark-Jones, president of the European Aluminium Association, which represents companies such as Pechiney SA, Europe's No. 2 publicly traded aluminum maker. ``That gives me some optimism.'' In Germany, the purchasing managers index climbed to 51.2, the highest since February 2001, from 50.2 in September. In France, the index rose to 51 from 48.6, the first reading above 50 since February. Italy's index rose to 51.8 from 49.8, the first expansion for eight months.
`Gaining Momentum'
``The numbers certainly suggest the recovery is gaining momentum,'' said Phyllis Papadavid, an economist at Lehman Brothers in London. European stocks rose for a sixth day, with the Dow Jones Stoxx 50 index adding 0.8 percent to 2560.29 as of 10:43 a.m. in Frankfurt. Bonds fell, with the yield on the benchmark 10-year German government bond rising 4 basis points to 4.36 percent. The median forecast of 34 economists surveyed by Bloomberg News was for a rise in the euro-12 index to 51. A survey of 25,000 companies in the dozen countries sharing the euro published Friday showed executives at their most optimistic in almost 2 1/2 years in October, buoyed by expectations that exports will spur the economy's recovery from the weakest growth in a decade. The euro region's economy contracted 0.1 percent in the second quarter as Germany, Italy and the Netherlands fell into recession and France shrunk 0.3 percent. The European Commission said last week it expects the region's economy to expand 1.8 percent next year, up from 0.4 percent in 2003.
U.S. `Bounce'
``If you get a bit of a bounce in the U.S., that will carry through to Europe, sentiment will improve and more domestic demand will be unleashed,'' said Lionel Oster, who helps manage the equivalent of $97 billion at F&C Management in London. A measure of U.S. manufacturing activity probably rose to a three-year high last month as production jumped after the biggest increase in demand in a quarter century drained inventories, a survey of economists showed. The Institute for Supply Management's factory index may rise to 55.9 from 53.7, the median forecast of 55 economists in a Bloomberg News survey showed. That report will be released at 10 a.m. in Washington today. Confidence among French manufacturers rose to an eight-month high in October. Cie. de Saint-Gobain SA, Europe's largest distributor of building materials, said last week third-quarter sales rose as demand for its roof shingles, windows and bathroom tiles increased, helped by demand from builders in the U.S. The company, based in Courbevoie, near Paris, makes insulation for a fifth of U.S. homes and has supplied roof tiles to actor Eddie Murphy and athlete Shaquille O'Neal.
Currency Concern
A subindex measuring new orders in today's report increased for a third month to the highest reading since May 2002. An index gauging production rose for a second month, to a 15-month high. Overshadowing the faster pace of growth overseas for some companies is the 10 percent increase in the euro's value against the dollar this year, making their goods more expensive abroad. Volkswagen AG, Europe's largest carmaker, said last week third- quarter profit fell 51 percent as a stronger euro wiped 400 million euros from pretax profit. In the first seven months of the year, exports from the euro region to the U.S. fell 9 percent to 97.6 billion euros, according to the European statistics agency. The euro rose to a record of $1.1933 in May and bought $1.1576 at 10:44 a.m. in Frankfurt, little changed from $1.1593 on Friday.
Rates on Hold
The recovery in the region isn't yet strong enough to prompt the European Central Bank to raise interest rates, economists predict. All 37 economists surveyed by Bloomberg News forecast the bank will keep its benchmark refinancing rate unchanged at 2 percent on Thursday. The ECB cut its benchmark rate three times in the past year to try to stimulate growth. Interest rate futures suggest investors are betting the ECB won't raise borrowing costs until the second quarter. The yield on the contract for June was 2.52 percent at 10:29 a.m. in Frankfurt, compared with a three-month rate now of 2.16 percent. ``I hope they're on hold, because the recovery is still at an early stage,'' said F&C's Oster. ``It would be foolish to hike too early in the cycle.'' In the U.K., whose economy expanded by 0.6 percent in the past two quarters, economists predict a rate increase this week. Of 44 economists surveyed by Bloomberg, 38 expect the Bank of England to raise its benchmark lending rate to 3.75 percent from 3.5 percent. A rate increase would be the first by the world's top four central banks in more than three years. //www.bloomberg.com