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India factory output at 2-year high: survey

[MUMBAI] Indian factory output expanded at its quickest pace in two years last month, a key survey showed Friday, in a further sign that the economy is picking up under new Prime Minister Narendra Modi.

Banking giant HSBC said that its purchasing managers index (PMI) rose to 54.5 points in December, up from 53.3 in the previous month.

In the survey, which is seen as a harbinger of industrial expansion and economic health, a reading of more than 50 points suggests expansion while anything below indicates contraction.

"Manufacturing activity momentum accelerated to a two year high in December, led by a healthy increase in new orders," said Pranjul Bhandari, chief economist at HSBC.

The survey suggested a continuing sharp fall in input prices such as oil could create "space for some rate cuts" in 2015.

Earlier this month, the Reserve Bank of India hinted that it would be in a position to lower interest rates if price pressures continued to ease.

But the survey sounded a cautious note on the pace of recovery in Asia's third-largest economy, saying it was "critical" that demand for investment goods, such as heavy machinery, outpaced demand for consumer goods.

Mr Modi's right-wing Hindu nationalist party won a landslide general election in May but his government has been struggling to step up the pace of reforms to revive the stuttering economy due to opposition in India's upper house of parliament.