Purchasing managers' indices record sharp rise in euro-zone manufacturing sector.

Strong global demand boosted exports from the Republic and the wider euro zone last month pushing manufacturing sector growth in both areas to multi-month highs, according to surveys of purchasing managers. The British manufacturing sector also expanded at its fastest pace since the start of the year .

The Irish Purchasing Managers' Index (PMI) - compiled by NCB Stockbrokers - rose from 52.5 in September to 53.4 in August. This was the sharpest rate of growth in the index, which measures the economic health of the manufacturing sector, since August 2004.

NCB said the September figure was further evidence of recovery in the manufacturing sector. "The advance in activity in October was substantially driven by rapid growth in export orders, which showed their strongest performance in nearly six years," said Dermot O'Brien, chief economist, NCB. He added that improvement in exports should help allay concerns about competitiveness.

The euro-zone PMI climbed one point to a 13-month high of 52.7 in October, moving further above the 50 line between growth and contraction and strengthening the case for an interest rate hike next month or in early 2006.

"This could provide a small additional backing to the idea that the euro-zone economy is recovering and might support an early hike," said Lorenzo Codogno at Bank of America.

However, others noted that domestic demand in the euro zone remained weak. They said the European Central Bank may be reluctant to hike rates from a historic low of 2 per cent until the economy is less dependent on global demand - especially as growth is set to slow in many countries, including the US.

Luke Thompson, senior economist at NTC Research which compiles the European indices, said exports would likely support euro-zone manufacturing growth at around current levels until the end of the year, but further out the outlook is less clear. "We are looking for some real improvement in the employment numbers before we get too excited about the sustained momentum in the euro area," he said.

The British manufacturing sector expanded at its fastest pace this year in October thanks to robust factory output growth and a jump in export orders to a 15-month high. The Chartered Institute of Purchasing and Supply/RBS Purchasing Managers' Index also showed that prices at the factory gate rose for a third month running. The UK PMI unexpectedly climbed to 51.7 in October from 51.5 in the previous month.

"This should remove any doubt over next week's Bank of England rate decision, with rates set to be left on hold for another month," said James Knightley, economist at ING Financial Markets. The bank is expected to leave rates at 4.5 per cent next week, but economists are divided over whether the central bank will repeat its August cut soon as policymakers have been fretting over inflation.

- Additional reporting by Reuters