French factory sector takes unexpected upturn

PARIS (Reuters)- France's manufacturing sector managed a marginal but unexpected return to growth in February after six months of contraction, suggesting greater economic resilience than seemed likely a few months ago, although the services sector weakened markedly.

The Markit/CDAF flash manufacturing purchasing managers' index climbed to 50.2 in February from 48.5 in January, rising above the 50 mark separating growth from contraction for the first time since July 2011, data showed on Wednesday.

Analysts surveyed by Reuters had expected manufacturing to continue shrinking, with forecasts centring on a 49.0 reading.

The services PMI, meanwhile, dropped unexpectedly to 50.3 from 52.3, while the overall composite PMI, which combines both services and manufacturing, remained just above the cut-off mark at 50.6 compared with 51.2 in January.

"The manufacturing industry emerged from its recent shallow downturn," said Jack Kennedy, senior economist at Markit.

"While there is little to get too excited about, the first quarter is shaping up to be better than seemed likely towards the end of last year," he said.

Manufacturing output rose for the first time in seven months in February, taking the sub-index to 51.4 from 48.8. Export orders also increased for the first time since July.

But February data still showed signs of fragility, with overall factory orders still falling, albeit at a more moderate pace than in January.

Chris Williamson, economist at Markit, said he still thought the French economy would contract slightly in the first quarter of 2012, by 0.1 or 0.2 percent.

However, "it's better than we thought we'd be seeing back in October when it seemed that we were heading south and there was very little to stop the downward trend," he said.

"We have seen better newsflow, we have seen more action from the ECB which has filtered through to the real economy."

France managed to defy expectations in the last quarter of 2011, posting 0.2 percent growth, according to preliminary data last week, instead of the 0.1 percent contraction predicted in a Reuters survey of economists - in contrast with the 0.2 percent decline in Germany, widely deemed to be in better economic shape than France.

The European Central Bank's moves to ease banks' funding strains and lower interest rates also appear to be supporting the economy.

Business expectations in the services sector rose to 61.9 in February, their highest level since July last year, and well above January's level of 54.5.

The main positive surprise in fourth quarter GDP data came from business investment which grew by 1.4 percent. However, it remains to be seen whether this trend can be maintained, with consumer spending slowing and high rates of unemployment.

Composite data showed the French economy is still not creating any significant growth in jobs - a major handicap for conservative President Nicolas Sarkozy who is lagging his main rival, Socialist Francois Hollande, in opinion polls for an April/May presidential election.

(Writing by Vicky Buffery; Editing by Ruth Pitchford)