Business Blog Posts

SEATTLE (Reuters) � Microsoft Corp sued Motorola Inc, alleging patent infringement on the handset maker's line of Android phones, in the latest development in a web of legal actions in the evolving smartphone business.

Microsoft, the world's largest software company, charged that former ally Motorola infringed nine of its patents in the Android-based smartphones, which run on software built by Google Inc.

Microsoft makes its own Windows phone software, which it charges handset makers to use in their phones. Motorola, like some rivals, has shifted toward Google's free Android as a more attractive option, straining the relationship between the two companies.

The suits come 10 days before Microsoft launches the new version of its mobile software, which it hopes will win back market share from Apple Inc's iPhone and Google.

The patents in question relate to synchronizing e-mail, calendars and contacts, scheduling meetings and notifying applications of changes in signal strength and battery power, Microsoft said in a statement.

A Motorola spokeswoman said the company has not yet received a copy of the suit, but based on its strong intellectual property portfolio, plans to "vigorously defend itself."

Google said it was disappointed in Microsoft's move, which it claimed would threaten innovation in the sector. "While we are not a party to this lawsuit, we stand behind the Android platform and the partners who have helped us to develop it," the company said in an e-mailed statement.

The suit is the latest in a complicated series of legal actions between various phone makers and software firms over who owns patents to the technology used in smartphones, kicked off by Nokia suing Apple last year, and Apple subsequently suing handset maker HTC Corp. Oracle Corp has also sued Google over Android software.

"Our action today merely seeks to ensure respect for our intellectual property rights infringed by Android devices," said Horacio Gutierrez, deputy general counsel in charge of Microsoft's intellectual property, in a blog post on the company's website. "Judging by the recent actions by Apple and Oracle, we are not alone in this respect."

Microsoft said it filed its actions against Motorola at the International Trade Commission and in federal court in Seattle.

The case is 2:10-cv-01577 Microsoft Corporation v. Motorola Inc, filed in the U.S. District Court for the Western District of Washington.

(Reporting by Bill Rigby; Editing by Robert MacMillan, Gerald E. McCormick, Richard Chang and Gunna Dickson)

NEW YORK/WASHINGTON (Reuters) � A computer-driven sale worth $4.1 billion by a single trader helped trigger the May flash crash, setting off liquidity shocks that ricocheted between U.S. futures and stock markets, regulators concluded in a report.

The report by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission did not name the trader. Reuters, citing internal documents prepared by exchange operator CME Group Inc, in May identified the trader as money manager Waddell & Reed Financial Inc.

The long-awaited report focused on the relationship between two hugely popular securities -- E-Mini Standard & Poor's 500 futures and S&P 500 "SPDR" exchange-traded funds -- and detailed how high-frequency algorithmic trading can sap liquidity and rock the marketplace.

"The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets," the report said.

The "flash crash" sent the Dow Jones industrial average plunging some 700 points in minutes on May 6, exposing flaws in the electronic marketplace dominated by high-speed trading. The Dow was down nearly 1,000 points at its lowest point on that day.

Although the report did not make any recommendations, it lays the foundation for a special commission to propose new rules to avoid a repetition. At least one lawmaker threatened congressional action if regulators did not address the disparity in the markets.

Trading was turbulent that afternoon because of concerns over the European debt crisis. Against that backdrop, a "large fundamental trader" initiated a sell program to sell 75,000 E-Mini contracts as a hedge to an existing equity position, according to the 104-page report.

Citing documents from CME Group, Reuters reported on May 14 that Waddell sold a large order of E-Minis during the market plunge, identifying the firm to which the chairman of the Commodity Futures Trading Commission, Gary Gensler, had alluded in congressional testimony.

The CFTC had resisted naming Waddell in Friday's report because of laws that allow it to withhold such information from the public, sources have said.

SEC and CFTC officials declined to comment on whether they were investigating Waddell for any wrongdoing. Waddell, of Overland Park, Kansas, declined to comment on the report.

THE 'HOT-POTATO' EFFECT

Waddell's selling algorithm had "no regard to price or time," the report said. That, coupled with the "aggressive" reaction by high-frequency traders hedging their positions, led to two separate "liquidity crises" -- one in the E-minis, the other among individual stocks.

Waddell's algo "responded to the increased volume by increasing the rate at which it was feeding the orders into the market, even though orders that it already had sent to the market were arguably not yet fully absorbed by fundamental buyers or cross-market arbitrageurs," the report said.

These arbitrageurs transferred the selling pressure to the stock market, sparking a "hot-potato" effect among high-frequency traders that rapidly passed the same positions back and forth.

The stock market, the report continued, began plunging as trading pauses kicked in at individual firms, as high-frequency traders became net sellers, and as market makers began routing "most, if not all," retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity.

Shares of Waddell edged higher on Friday. They fell sharply on the day of the initial Reuters report.

RECOMMENDATIONS ON THE HORIZON

The unprecedented flash crash called into question many of the regulatory and technological changes over the last decade, which ushered in an era of lightning-quick trading on dozens of mostly electronic exchanges and alternative venues.

Data to the beginning of this month show that funds have exited mutual funds in every week since early May. Meanwhile, the 20-day moving average of the S&P 500's daily volume shows a slow decline since late May, according to Reuters data.

"I do not expect today's report to restore the confidence that was lost as a result of the flash crash," said David Joy, Minneapolis-based chief market strategist at Columbia Management, a large money manager.

"Most individual investors do not fully understand how high-frequency trading works, only that it can create volatility and seems to put them at a disadvantage. Only time, and higher stock prices, will restore that lost confidence."

The SEC, under enormous political and public pressure to act, in the last few months adopted new trading curbs known as circuit breakers and proposed establishing a consolidated audit trail of all stock trading.

Lawmakers seized on the latest report as a reason for the SEC to do more to fix the fragmented markets.

"The SEC should seriously consider ways to slow things down when markets get volatile," said Democratic Senator Charles Schumer.

Democratic Representative Paul Kanjorski said regulators must act quickly to revise market rules.

If necessary, Congress must "put in place new rules of the road to ensure the fair, orderly and efficient functioning of the U.S. capital markets," Kanjorski said.

The flash crash report comes just as the SEC and the CFTC have begun drafting nearly 200 rules required by the landmark U.S. Wall Street reform legislation, which includes a revamp of the opaque over-the-counter derivatives market.

(Reporting by Jonathan Spicer and Rachelle Younglai. Additional reporting by Herbert Lash in New York; Editing by Richard Chang and Robert MacMillan)

DETROIT (Reuters) � Auto sales slipped in September from August, initial data from major carmakers showed, adding to evidence that the market remains stuck in a slow-motion recovery at the start of the fourth quarter.

Ford Motor Co (F.N) was the standout in a still-slack market, posting a sales gain of more than 2 percent in September from the previous month.

Sales for General Motors Co (GM.UL) were down 6 percent, while Nissan Motor Co (7201.T) was off 3 percent.

Chrysler, now operating under the management of Fiat SpA (FIA.MI), was up less than 1 percent. Toyota Motor Corp (7203.T) was down less than 1 percent.

All of the automakers posted double-digit sales increases from the unusually weak results of September 2009, when inventories were depleted by the expiration of the government's cash-for-clunkers sales incentives and buyers were scarce.

Automakers said results pointed to a continuing but slow recovery with consumers still too concerned about housing prices and employment prospects to begin buying vehicles at anything near the historical rate for the U.S. market.

"Consumers are sending a very clear message that they will be cautious with their spending," GM sales chief Don Johnson told reporters and analysts.

GM's sales were up almost 11 percent in September from a year earlier, the smallest year-on-year gain among major automakers.

Sales for its rivals were all higher: Toyota (+17 percent), Nissan (+35 percent), Ford (+46 percent) and Chrysler (+61 percent).

"The economy does remain hampered by the negative mix of jobs, housing and credit and it's really that troika of challenges which we think will improve gradually," said Ellen Hughes-Cromwick, Ford's chief economist.

The initial sales results pointed to an annualized, industrywide sales rate for September of somewhere between 11.7 million and 11.9 million vehicles, up slightly from near 11.5 million in August because of a statistical adjustment.

On a simple basis, the number of vehicles sold in the United States appeared to have fallen to about 980,000 vehicles in September compared with more than 997,000 in August.

Despite that pullback, Nissan said it saw hopeful signs in easier credit terms for car buyers with subprime credit ratings and better showroom traffic.

"Consumer confidence -- even though it has had peaks and valleys this year -- overall it has increased," said Nissan brand chief Al Castignetti.

GM SEES GAINS DESPITE SLOW MARKET

The sales results were one of the last snapshots of demand that investors will see for GM before an initial public offering expected next month.

Johnson said the automaker was heading into the fourth quarter with a much higher share of new models than it had held a year earlier, reducing the pressure for incentives.

GM spent about $3,300 in incentives per vehicle on average to close sales in September. That represented a discount of about 10.7 percent of the average cost -- in line with the industry's average.

Johnson said GM would remain disciplined in pricing and avoid the temptation to rely on more aggressive discounts to drive sales volumes.

"It's the economic recovery that has to drive our sales," he said. "Is it slower than everyone would like? Potentially," Johnson said.

GM was restructured in a bankruptcy funded by the Obama administration and the government is counting on an IPO to reduce its nearly 61 percent stake in the automaker.

Industry-wide sales for September face an unusually easy comparison to 2009 when the auto sales rate was an anemic 9.2 million vehicles.

That exceptionally weak sales rate represented what analysts called a "hangover" from the expiration of the U.S. government's popular cash-for-clunkers sales incentives a month earlier.

For that reason, many analysts will look at the comparison between September and August sales rates for a better sense of the trend.

(Reporting by Bernie Woodall and Kevin Krolicki, editing by Matthew Lewis)

NEW YORK/WASHINGTON (Reuters) � Regulators have concluded that a single trade by a "large fundamental trader" helped trigger the brief market crash May 6, according to the regulators' report released on Friday.

Internal exchange documents have identified the trading firm as Waddell & Reed Financial Inc, but the report authored by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) did not identify it by name.

The so-called flash crash sent the Dow Jones industrial average down some 700 points in minutes, exposing flaws in the electronic marketplace dominated by high-frequency trading.

Trading on that day was turbulent due to concerns over the European debt crisis. Against that backdrop, a "large fundamental trader" initiated a sell program to sell 75,000 E-Mini contracts as a hedge to an existing equity position, according to the 104-page report.

On May 14, Reuters reported that Waddell sold a large order of E-Mini futures contracts during the market plunge, identifying the firm to which CFTC Chairman Gary Gensler had alluded in congressional testimony.

Waddell chose to execute this sell program via an automated execution algorithm, resulting in the largest net change in daily position of any trader in the E-Mini since the beginning of the year, according to the report.

When markets were already under stress May 6, the algorithm executed the sell program "extremely rapidly in just 20 minutes," regulators said.

The report lays the foundation for a special commission to recommend new rules to avoid a repeat of such a crash.

The SEC and CFTC are drafting nearly 200 rules required by U.S. Wall Street reform legislation.

(Reporting by Jonathan Spicer and Rachelle Younglai)

CHICAGO (Reuters) � The Federal Reserve should take further action to stimulate the economy, or risk letting it fall into a vicious cycle of joblessness and deflationary pressures, top Fed official said on Friday.

Chicago Federal Reserve President Charles Evans framed the debate over further monetary policy accommodation by the U.S. central bank as one of "how much" and "how," rather than whether it should take steps in the first place.

"The size of the unemployment gap, combined with the fact that inflation has been running below the level I consider consistent with long-term price stability, suggests that it would be desirable to increase monetary policy accommodation to boost aggregate demand and achieve our dual mandate," said Chicago Federal Reserve President Charles Evans, according to text prepared for delivery at a Bank of France conference in Rome.

In casting his lot unequivocally with the doves, who tend to be driven more by concerns over employment than inflation, Evans joined William Dudley, president of the New York Fed, who said earlier today that further Fed action is likely to be warranted unless the economy improves.

Evans will rotate into a voting spot on the Fed's policy-setting committee next year.

Economic growth is likely to slow further in the second half of 2010, and increase only moderately in 2011 and 2012, he said.

Meanwhile, inflation looks set to remain below desirable levels "over any reasonable forecast horizon," he said. And high unemployment -- now at 9.6 percent -- cannot be attributed only to structural factors that would be beyond the ability of the Fed to affect, he argued.

Evans said one of his top concerns is "the possibility that we might be in a liquidity trap," where businesses and households are so cautious about the future that they save more then they invest, even though short-term interest rates are at zero.

"The modern economic theory of liquidity traps indicates that the optimal policy response at zero-bound is to lower the real interest rate, almost surely by employing unconventional policy tools," he said.

"Theory also indicates that, in the absence of such policy stimulus, the factors that generate high risk aversion could very well stifle a meaningful recovery, keep unemployment high and reinforce disinflationary pressures -- clearly an undesirable equilibrium."

In the coming weeks and months, Evans said, he will assess incoming data, update his forecast and weigh the best monetary policy response.

"I will be pondering two key issues: How much more should monetary policy do to reduce the shortfalls in meeting our dual mandate responsibilities for employment and price stability; and what tools should we use?"

(Reporting by Ann Saphir, Editing by Chizu Nomiyama)

NEW YORK (Reuters) � The pace of growth in the manufacturing sector slowed in September, an industry report on Friday showed, and employment in the sector also declined.

The Institute for Supply Management said its index of national factory activity slipped to 54.4 last month from 56.3 in August. The median forecast of 79 economists surveyed by Reuters was for a reading of 54.5.

A reading above 50 indicates expansion. While manufacturing has expanded every month since August 2009, the pace of growth has slowed in recent months amid signs a broader U.S. recovery was running out of steam.

In September, sector employment slipped to 56.5 from 60.4 in August. The broader U.S. labor market has remained sluggish this year, and the jobless rate stands at 9.5 percent.

The index's new orders component fell for a fourth straight month, to 51.1 from 53.1. Prices paid, however, jumped to 70.5 from 61.5.

(Reporting by Steven C. Johnson; Editing by James Dalgleish)

WASHINGTON (Reuters) � Consumer spending rose slightly more than expected in August, but inflation remained subdued, leaving the door open for the Federal Reserve to launch a fresh round of monetary policy easing.

The data on Friday was the latest in a series to imply economic activity rose modestly in the third quarter after growth slowed to a 1.7 percent annual pace in the April-June period.

The Commerce Department said consumer spending increased 0.4 percent after rising by the same margin in July. Analysts polled by Reuters had forecast spending, which accounts for about 70 percent of U.S. economic activity, rising 0.3 percent in August.

The Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose only 0.1 percent for a fourth straight month.

In the 12 months through August, the core PCE index increased 1.4 percent for the third consecutive month.

"More quantitative easing is on the way. The Fed may see the track of growth being too slow. It may be too close for comfort for them in terms of deflation. I don't know whether they will do it (QE) in November or December," said John Canally, an economist at LPL Financial in Boston.

U.S. stock index futures extended gains, while Treasury debt prices pared losses. The U.S. dollar fell versus the euro.

The Fed warned last week that underlying inflation was below levels policymakers viewed as consistent with the U.S. central bank's mandate of full employment and price stability.

It said it was ready to pump more money into the economy to shore up growth and avert a harmful downward spiral in prices.

MORE ACTION WARRANTED

On Friday, New York Federal Reserve Bank President William Dudley said more action by the Fed to boost growth would likely be warranted unless the economic outlook improved.

"Further action is likely to be warranted unless the economic outlook evolves in such a way that makes me more confident that we will see better outcomes for both employment and inflation before long," Dudley told a conference of business journalists in New York.

The Fed, which has already injected $1.7 trillion into the economy through purchases of mortgage-related and government bonds, next meets on November 2-3.

A 9.6 percent unemployment rate and shrinking household wealth as the economy struggles to recover from the worst recession since the Great Depression are crimping spending.

In August, spending was supported by a 0.5 percent rise in personal income, the largest rise since December, the Commerce Department report showed. The rise in incomes was above market expectations for a 0.3 percent increase and followed a 0.2 percent gain in July.

"The income data could be a very early indication that incomes are starting to recovery a little bit, which of course would be a good thing," said Paul Nolte, managing director, Dearborn Partners in Chicago.

Spending adjusted for inflation rose 0.2 percent after a similar gain in July. The fourth straight month of gains offered hope that consumers continued to prop up economic growth in the third quarter.

Spending grew at an annual 2.2 percent pace in the second quarter, the government reported on Thursday.

With spending a touch below the 0.5 percent rise in disposable income, the saving rate edged up to 5.8 percent from 5.7 percent in July. Savings rose to an annual rate of $661.9 billion.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

NEW YORK (Reuters) � More action by the Federal Reserve to boost growth will likely be needed if the economic outlook doesn't improve, a top Federal Reserve official said on Friday.

William Dudley, president of the Federal Reserve Bank of New York, said current conditions of high unemployment and low inflation are "unacceptable".

"Further action is likely to be warranted unless the economic outlook evolves in such a way that makes me more confident that we will see better outcomes for both employment and inflation before too long," Dudley told a conference of business journalists in New York.

Dudley, seen as one of the more dovish Fed presidents, said the costs of the tools the Fed has available to ease policy further "do not appear prohibitive".

The U.S. central bank said at its most recent policy-setting meeting that it stands ready to help the recovery if necessary. It has already cut interest rates to near zero and pumped $1.7 trillion into the financial system through purchases of longer-term Treasury securities and mortgage-related debt.

Many analysts expect the Fed to start a new round of bond purchases, or quantitative easing, as soon as its next meeting in early November.

Dudley said $500 billion of purchases would likely have about the same impact as a 0.5 or 0.75 percentage point decline in the Fed's benchmark federal funds rate.

He described as too dark the view that lowering borrowing costs further would be ineffective, or akin to "pushing on a string".

"Although the responsiveness of demand to reductions in interest rates is probably lower in a world in which balance sheet constraints are important, the responsiveness is not zero," he said. "I believe that it remains significant."

Dudley said the Fed could also clarify its commitment to stimulating the economy by clarifying its statement language.

"By clarifying our intentions, we can reduce the risk of further disinflation," he said. Disinflation is a problem, he said, as it can cause inflation expectations to fall, increasing the real cost of credit.

He said the Fed could be more explicit as to what constitutes overly low inflation by stating an explicit inflation objective. He did caution, however, that if the Fed were to do this it would not be a sign that inflation was more important to the Fed than employment. The Fed has a dual mandate of full employment and price stability.

"If we judged it desirable, we could go still further and provide more guidance on how monetary policy would react to deviations from any stated inflation objective," he said.

Dudley addressed some of the costs of providing more stimulus to the economy. He said a risk is that a bigger balance sheet could cause inflation expectations to become unanchored. He said the Fed would have to be clear it has a credible exit strategy in place.

The talk of more quantitative easing has undermined the dollar in recent weeks and added to the cash flooding into emerging markets as investors search for yield.

He said he was "very mindful" of concerns that more Fed purchases could be seen as a policy of monetizing the debt, but said this view is "fundamentally mistaken".

The longer the U.S. economy is "stuck with the current level of slack and disinflationary pressure, Dudley said, the greater the likelihood that a further shock could push us still further from our dual mandate objectives and closer to outright deflation."

"We have tools that can provide additional stimulus at costs that do not appear prohibitive."

The president of the New York Fed has a permanent voting seat on the Fed's policy-setting committee.

(Reporting by Kristina Cooke, Editing by Chizu Nomiyama)

LONDON (Reuters) � BP named the Gulf of Mexico assets that it will use to help finance the $20 billion fund for victims of its oil spill and said the cost of dealing with the disaster had risen to $11.2 billion.

The oil major on Friday said that revenue from a number of its oil fields in the Gulf of Mexico, including Thunder Horse, Atlantis and Mad Dog, would be tied to its compensation payments to the fund.

A BP spokesman declined to comment on whether the deal means the U.S. government has told BP, or the company expects, it will not be banned from future drilling.

There have been some concerns that BP could be banned after lawmakers in July voted to pass an amendment to a bill that would prevent BP from acquiring drilling leases after the blow-out at its Macondo well in April led to the worst oil spill in U.S. history.

Shares in BP gained 2.8 percent to 439.7 pence at 0917 GMT (5:17 a.m. EDT) on Friday, their highest level since early June, outperforming Britain's blue-chip index, which was up 1.1 percent.

BP also said that the total bill for fighting the spill and compensating victims hit $11.2 billion by September 29, rising from $9.5 billion on September 18.

The pledging of the assets is in line with the terms of the fund set out in August, when BP agreed to give the fund first priority to some revenues to finance its $5 billion contribution this year and the $1.25 billion every quarter from 2011 to 2013.

(Reporting by Sarah Young, additional reporting by Tom Bergin; Editing by Erica Billingham)

LONDON (Reuters) � Futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 were up 0.5-0.7 percent, pointing to a firmer start on Wall Street on Friday.

The Institute for Supply Management was set to release its September manufacturing index at 1400 GMT. Economists in a Reuters survey expect a reading of 54.5 versus 56.3 in August.

Chinese manufacturing picked up steam in September after a mid-year lull, easing concerns of a renewed downturn in global growth, although other leading Asian economies showed some signs of softer business activity.

Thomson Reuters/University of Michigan Surveys of Consumers will release final September consumer sentiment index at 1355 GMT. Economists expect a reading of 67.0 compared with 66.6 in the preliminary September report.

Shares in Hewlett-Packard fell more than 3 percent in extended trade on Thursday after the company named former SAP

Chief Executive Leo Apotheker as its new CEO and president.

The Commerce Department was scheduled to release at 1230 GMT August personal income and consumption data. Economists in a Reuters survey expect both income and spending to increase 0.3 percent. In July, income rose 0.2 percent and spending was up 0.4 percent.

At 1400 GMT, the Commerce Department releases August construction spending. Economists in a Reuters survey forecast a fall of 0.4 percent compared with a 1.0 percent drop in July. * Resource-related stocks will be in focus as crude oil prices rose back above $80 a barrel to a seven-week high on hopes of demand recovery in the world's largest consumers.

AIG named a new acting head for its Taiwan unit Nan Shan Life in a move that analysts said paves the way for AIG to sell the unit again following the collapse of an earlier $2.2 billion deal.

At 1430 GMT, Economic Cycle Research Institute (ECRI) releases its weekly index of economic activity for September 24. In the prior week, the index read 122.2.

European shares rose on Friday after falling in the previous four sessions. Forecast-beating China manufacturing data fueled gains that were led by commodities stocks.

Japan's Nikkei rose 0.4 percent on Friday, boosted by short-covering after sharp falls the previous day and after better-than-expected U.S. economic data provided a degree of optimism.

Wall Street wrapped up its best quarter in a year on Thursday with the S&P and Nasdaq logging in the biggest monthly gains since April 2009, as data showed the economy is not in such bad shape.

Defying September's track record as the worst month for stocks, the S&P 500 was up 8.8 percent. In the third quarter, the index gained 10.7 percent, which was the best in a year.

(Reporting by Atul Prakash; Editing by Michael Shields)

BEIJING (Reuters) � Chinese manufacturing picked up steam in September after a mid-year lull, easing concerns of a renewed downturn in global growth, although other leading Asian economies showed some signs of softer business activity.

Manufacturing activity slowed in India in September and contracted in South Korea and Australia, surveys showed. Data on Thursday showed Japanese manufacturing contracted for the first time in 15 months and reports later on Friday are expected to show slowdowns in the United States and Europe.

Still, China dominated.

"The PMIs are a very good gauge of the outlook for industrial production in China, and they tell a beautiful story," said Rob Henderson, head market economist at National Australia Bank in Sydney.

"Fears of a substantial downturn have proved unfounded and this should put to rest a lot of the worries about the global outlook."

Indeed, the Asian purchasing managers indexes (PMI) followed signs that activity in the United States had picked up a little in the third quarter, easing worries about a fresh slump in the world's top economy.

New U.S. jobless claims fell last week and manufacturing in the Midwest region grew faster than expected in September.

China's official PMI rose to 53.8 in September from 51.7 in August, well above a median forecast of 52. The data pushed LME copper to a two-year high, lifted the Australian dollar and gave Asian stocks (.MIAPJ0000PUS) a boost.

India's manufacturing sector expanded for the 18th straight month, but the pace slowed to a 10-month low.

Indian manufacturing had stayed strong earlier this year as Chinese activity had slowed.

"The manufacturing sector shows signs of cooling after a red-hot pace earlier in the year," said Frederic Neumann, co-head of Asian Economics Research at HSBC.

"Capacity constraints may be partly responsible for this, in addition to the fading fiscal stimulus."

In Australia, among the few developed economies to avoid a recession after the global financial crisis, a strong local currency and soft domestic demand led to the first contraction in manufacturing activity in 2010, a survey showed.

PMIs use indicators such as new orders, employment, exports and order backlogs, to gauge the strength of manufacturing, and are considered a leading indicator of broader economic activity.

A reading above 50 indicates expansion, and below that a contraction. Further, a reading above 50 that is higher than the previous month indicates a quickening pace of activity, while a 50-plus reading lower than the previous month shows a slowdown.

Q2 GDP TWEAKED

The ISM index, measuring U.S. manufacturing activity and due to be released later on Friday, is expected to ease to 54.5 in September from 56.3 in August, underscoring the tepid nature of the U.S, recovery.

On Thursday, the U.S. government nudged its second-quarter growth estimate up to a 1.7 percent annualized pace from 1.6 percent after growth in consumer spending for April to June was revised up to the fastest pace in three years.

Though analysts think U.S. economic activity may have picked up in the September quarter, it remains far from robust and the Federal Reserve is expected to start a fresh round of monetary easing as soon as November.

"We can stop talking about a double dip, but we are going to grow much more slowly than most people's memory of a recovery will cause them to expect," said Jerry Webman, chief economist at OppenheimerFunds in New York.

In Europe, debt woes dominated after Ireland said it faced a worst-case bailout bill of more than 50 billion euros ($68 billion) for its distressed banks and Spain lost its AAA credit rating.

(Writing by John Mair; Editing by Neil Fullick)