Manufacturing in Europe Expands at Fastest Pace in Five Years, Jobless Rate Stuck at 8%

Faster growth is prompting some companies to plow money into factories and new workers although the jobless rate remains at 8%, double the U.S.

May 2 (Bloomberg) -- Manufacturing in the dozen euro nations expanded at the fastest pace in more than five years in April, indicating the economy may be better able to withstand higher interest rates.

An index based on a survey of about 3,000 purchasing managers rose to 56.7, the most since September 2000, from 56.1 in March, said NTC Economics Ltd., which compiles the measure for Royal Bank of Scotland Group Plc. A reading above 50 signals expansion.

Today's report showed companies are using profit from exports to invest at home, with a gauge of hiring rising to the highest since January 2001. The European Central Bank says it's prepared to raise rates for the third time since the start of December as faster growth and record oil prices threaten to fuel inflation.

``The acceleration in euro-zone manufacturing, together with the recent further rise in money and credit growth and the pickup in headline inflation, provide further ammunition for the ECB to tighten rates again soon,'' said Martin van Vliet, an economist at ING Bank NV in Amsterdam.

Faster growth is prompting some companies to plow money into factories and new workers. BASF AG, the world's largest chemicals maker, is adding capacity at plants in Germany and Belgium and Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said in March it's hiring more engineers in Germany.

An index of employment among euro-region manufacturers rose to 51.8 in April, the highest in more than five years, from 50.9 in March, according to NTC. For now, the euro region's jobless rate is still stuck above 8 percent, almost double the rate in the U.S.

NTC said a sub-index measuring prices paid by companies for manufacturing components and other materials rose to 65.5, the most since January 2005, from 62.5 in March. The price of oil rose to $75.35 a barrel on April 21 and was worth $74.01 a barrel at 8:34 a.m. in London.

Europe's economy has relied mostly on exports to fuel growth. HeidelbergCement AG, a German cement maker, said April 27 that rising orders in the U.S. helped the company return to profit in the first quarter. PSA Peugeot Citroen, Europe's second-largest automaker, said on the same day that vehicle sales in China jumped 32 percent in the first three months of the year.

The euro rose, climbing as high as $1.2668 close to yesterday's 11-month high of $1.2690. The yield on the benchmark 10-year German government bund was at 3.981 percent at 1:30 p.m., around the same level before the report was released.

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