Europe's manufacturing industry, which makes up about a fifth of the region's economy, expanded in November for a third month as accelerating global growth increased demand for factory goods.

An index based on a survey of about 3,000 companies compiled for Reuters Group Plc by Henley-on-Thames, England-based NTC Research, rose to 52.2, the highest since February 2001, from October's 51.3. A reading above 50 shows expansion. The gain was led by new orders, which rose the most in more than three years.

Rising exports in the third quarter helped the economy of the dozen nations sharing the euro to rebound from a contraction in the previous three months. Sales abroad were boosted by the fastest expansion in almost two decades in the US economy, destination of about a fifth of the region's exports.

"We're getting increasingly confident that we're entering a period of sustainable growth," said Adam Chester, chief economist at HBOS Plc in London. "We've seen the United States get better, there are improvements in consumer confidence, and now there are signs the recovery is spreading."

Clouding the outlook for faster growth is the euro's appreciation. The euro rose to US$1.2043 on December 1, the highest since its introduction in 1999 and bringing gains over the past year to 21 per cent. The euro's increase makes European goods more expensive in the United States and erodes the value of US revenue and earnings when translated into euros.

The euro's gain will contribute to a reduction in US sales next year at Volkswagen AG, Chief Executive Bernd Pischetsrieder said in an interview with Bloomberg News last week.

US growth

So far, accelerating demand abroad has more than made up for the effect of the euro's gains. The United States, the world's largest economy, grew at an annualized rate of 8.2 per cent in the third quarter, the quickest pace since 1984. Japan's economy grew 0.6 per cent to extend the longest period of growth since 1997.

A gauge of US manufacturing rose to the highest in 20 years in November. The Institute for Supply Management's factory index increased to 62.8 from 57 in October. Economists had expected a reading of 58.2, the median of 64 forecasts showed.

"Recent data show the recovery of the global economy is clearly making progress," European Central Bank (ECB) President Jean-Claude Trichet told a European Parliament committee in Brussels on December 1. Rising global trade "should support euro exports."

Stocks rise

European stocks held gains after December 1's euro zone report. The Dow Jones Euro Stoxx 50 Index rose 1.3 per cent to 2663.44. In Frankfurt, bringing gains this year to almost 12 per cent. Economists had expected the report to show an increase to 52.5, the median of 34 forecasts in a Bloomberg survey showed.

Business confidence in the euro area rose to the highest since June 2001 last month and consumers were more optimistic than at any time this year, according to a European Commission survey released last week. Siemens AG, the world's fourth-largest mobile phone company, in November raised its forecast for global handset sales for the second time in three months.

The new orders figures "indicate that the recovery is a fact," said David Cano, an economist at Analistas Financieros Internacionales in Madrid. "It's not going to be a strong recovery, but we see we're past the worst."

Airbus SAS, the world's second-largest planemaker, last week won an order from Ireland's state-owned Aer Lingus Plc for seven A320-series planes. VA Technologie AG, Austria's No 1 engineering company, and Bombardier Inc, the world's biggest maker of passenger-train equipment, won an order valued at 215 million euros (US$258 million) for trains from Austrian Federal Railways.

'Gathering pace'

German factory orders probably rose 0.7 per cent in October from the previous month, a Bloomberg survey of 34 economists showed. Industrial production may have gained 1.3 per cent, the median of 36 forecasts showed. The Economics Ministry was expected to publish the figures on Thursday and Friday, respectively.

"A rebound is in the air, and it's gathering pace," Vittorio Merloni, chairman of Merloni Elettrodomestici SpA, said last month. Merloni, Europe's third-biggest maker of home appliances, said third-quarter profit rose 14 per cent.

Sales abroad led Germany out of recession in the three months through June. Domestic demand, which includes consumer spending and investment by companies, fell at the steepest pace in more than a decade in the period.

The German and French governments, seeking to spur their economies with tax reductions and concerned further spending cuts would snuff out the recovery, last week won permission to break European Union budget deficit rules.

ECB meeting

Volkswagen's Pischetsrieder said demand may recover next year and strengthen German government plans to bring forward 15.6 billion euros (US$18.7 billion) in tax cuts pass through the upper house of parliament.

Satisfied the recovery is gaining strength, the ECB will leave its benchmark refinancing rate unchanged at 2 per cent at Thursday's policy meeting, said all but one of 44 economists polled by Bloomberg. The bank will probably wait until the fourth quarter of next year before raising the cost of money, the survey showed.

The ECB's Trichet may provide some details of the bank's new growth and inflation forecasts when he briefs the press about the rate decision. Board member Gertrude Tumpel-Gugerell said this month she expects few changes to the forecasts. The ECB estimates will be published this week.

The bank sees economic growth accelerating next year and inflation slowing below its 2 per cent limit, giving the bank room to keep borrowing costs at half-century lows.

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