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US factories rebound, resisting global downward pull

[WASHINGTON] US factories ramped up activity in September, shaking off a one-month contraction in a sign America was resisting the downward pull of the weakening global economy.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity rose to 51.5 from 49.4 the prior month, beating analyst expectations in a Reuters poll. Levels above 50 indicate the sector is expanding.

"This is a relief," said Ian Shepherdson, an economist at Pantheon Macroeconomics.

The dollar rose to session highs against a basket of currencies while Treasury yields also moved higher. US stocks trimmed losses.

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Factory output was a weak spot for the US economy early in the year as a global slump weighed on American factories.

More recently, net exports added to economic growth in the second quarter and Monday's report showed signs factories' future sales could increase, with the ISM index for new orders rising to 55.1 from 49.1 in August.

Manufacturing is grappling with the lingering effects of a strong dollar and lower oil prices. Activity in the sector, which accounts for 12 per cent of the US economy, has also been undercut by an inventory correction.

Another report on Monday showed US construction spending fell for the second straight month in August to its lowest level in eight months, an unexpected drop driven by weakness across public and private sectors.

The successive declines suggest home building might not help economic growth in the third quarter.

The Commerce Department said construction spending dropped 0.7 per cent to a seasonally adjusted annual rate of US$1.142 trillion in August. Economists had expected outlays to rise 0.2 per cent.

Private spending on household construction fell 0.3 per cent in August, and the government revised downward its estimate for overall construction spending during July.