US manufacturing activity weakens

Manufacturing firms are finding life more difficult

US manufacturing has weakened sharply in a fresh sign that the world's largest economy is slowing down, according to a key survey.

National factory activity fell to its lowest level last month in more than three years, the Institute for Supply Management (ISM) survey said.

The news may put extra pressure on the dollar as its value continues to fall sharply against other currencies.

Fears over a slowdown have pushed it to a 14-month low against sterling.

Rates focus

While interest rates have been rising across Europe, analysts believe recent economic indicators make a US rate cut a strong possibility next year.

In November, the ISM index hit its lowest monthly mark since April 2003.

The path towards easier monetary policy may occur sooner rather than later if such trends persist Anthony Chan, JP Morgan Chase Bank

This followed figures showing the first contraction in manufacturing activity in the Midwest in more than three years.

US rates have been on hold for three months and despite frequent warnings from the Federal Reserve about persistent inflationary pressures, many analysts believe their next move will be down.

Analysts said the ISM figures were significant, although further evidence of a downturn in activity would be needed for the Fed to take action.

"The path towards easier monetary policy may occur sooner rather than later if such trends persist," said Anthony Chan, chief economist at JP Morgan Chase Bank.

One analyst said the dollar would continue to decline against European currencies if the economic signs did not improve.

"There is no reason to buy dollars, especially versus European currencies," said Thierry Elias, head currency trader at Banque Natexis Populaires.

"It just supports the mentality that has been in place for the past 10 days and that is: sell dollars."