GLOBAL ECONOMY-Recovery marches on, prices soar in Europe

* Surveys suggest Japan quake is not affecting growth

* Prices rising sharply in euro zone

* Euro zone composite PMI suggests Q1 growth of 0.8 pct

* China PMI hits two-month high

* U.S. durable goods orders fall, labor market healing
(Adds U.S. durable goods orders, jobless claims data)

By Jonathan Cable and Simon Rabinovitch

LONDON/BEIJING, March 24 (Reuters) – The global economic
recovery marched on this month, shrugging off a devastating
earthquake and tsunami in Japan, but Middle East turmoil is
pushing prices higher, business surveys showed on Thursday.

The euro zone’s dominant service sector accelerated and
while its factories saw solid but slower growth, their Chinese
counterparts stepped up a gear, Purchasing Managers’ Indexes
compiled by Markit found.

News from the United States was somewhat disappointing,
with orders for long-lasting manufactured goods unexpectedly
fell in February and business spending plans declined for a
second straight month.

However, economists cautioned against reading too much into
the report, which tends to be very volatile and was in stark
contrast with surveys showing strong factory activity.

The euro zone’s composite PMI, a broad survey of the
private sector conducted largely before a massive earthquake
and tsunami devastated Japan, dipped only slightly from
February’s near five-year high to 57.5. [EUR/PMIS]

“We doubt that the negative effect of the Japanese disaster
will have the potential to derail the economic recovery in the
euro zone,” said Chiara Corsa at UniCredit.

The composite index is often used as a guide to growth and
Markit said it pointed towards a first quarter euro zone
expansion of 0.8 percent, with upside potential.

Analysts polled by Reuters two weeks ago predicted first
quarter growth of just 0.5 percent, slowing to 0.4 percent per
quarter thereafter. (EUGDPQ: Quote, Profile, Research)

In contrast, the Chinese economy grew more than 10 percent
last year and its commerce ministry said that Japan’s
earthquake and tsunami were likely to have only a limited,
temporary impact on bilateral trade. For details, see
[ID:nTOE72L00S]

The HSBC flash manufacturing purchasing managers’ index
(PMI), the earliest available indicator of China’s industrial
activity, rose to a two-month high of 52.5 in March, up from a
final reading of 51.7 in February. [ID:nL3E7EO07J]

A figure above 50 points to expansion on the month.

Japan is China’s biggest source of imports, which include
high-tech products used in the manufacture of electronics and
autos.

In the United States, overall orders for so-called durable
goods, items meant to last three years or more, fell 0.9
percent after rising 3.6 percent in January. Economists had
expected a 1.1 percent increase.

Non-defense capital goods orders excluding aircraft, a
closely watched proxy for business spending, fell 1.3 percent
in February after a 6.0 percent drop the prior month.

Economists had expected the business spending gauge to rise
4.5 percent last month.

“This weak start to the year for core capital goods looks
contrary to the strength reported in the industrial production
data and the various manufacturing surveys,” said Daniel
Silver, an economist at JPMorgan in New York.

Other data showed the U.S. labor market recovery gaining
traction, with new applications for unemployment benefits
falling for a second week in a row and the four-week moving
average of initial claims dropping to its lowest in more than
2-1/2 years. [ID:nN24115372]

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For a graphic see http://r.reuters.com/qew68r

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PRICE PRESSURES

The input price index for the euro zone’s services sector
rose to 60.6 this month from February’s 58.4, its highest level
since August 2008, as oil prices have soared with turmoil in
the Middle East and North Africa heightening supply fears.

The manufacturing sector’s output price index rose to 61.4
from February’s 60.8, the highest since the survey began
tracking the index in November 2002, suggesting producers were
able to pass on the increase in input prices.

“These indexes support the view that inflation will remain
above the ECB’s price stability goal this year,” said Nick
Kounis at ABN AMRO.

Euro zone inflation hit 2.4 percent last month, bolstering
expectations that the European Central Bank will raise interest
rates in April.

The ECB wants to keep inflation close to but below 2
percent and signalled earlier in March that it may raise rates
next month, an eventuality analysts are now pricing in having
earlier forecast interest rates would not rise from a record
low of 1.0 percent until the fourth quarter of the year.
[ECB/INT]

In China, the world’s second biggest economy, an easing of
imported inflationary pressure sent a sub-index of input prices
to its lowest level in six months as some commodity prices fell
and monetary tightening by the government takes effect.

Since October, the Chinese central bank has increased
banks’ reserve requirements six times — most recently last
Friday — and raised interest rates three times to combat
inflation. [ID:nTOE722076]

“We expect Beijing to keep tightening in the coming months.
Combined with supply-side cooling measures, this should slow
inflation meaningfully by the middle of the year,” Qu Hongbin,
HSBC’s chief China economist said.
(Additional reporting by Lucia Mutikani in Washington; Editing
by Andrew Hay)

GLOBAL ECONOMY-Recovery marches on, prices soar in Europe