US manufacturing remains strong

The data may calm fears of the market woes spreading

The US manufacturing sector has remained strong, data shows, offering some reassurance that woes in the financial markets has yet to spread.

The Institute for Supply Management (ISM) manufacturing index fell to 52.9 in August from July's 53.9. Analysts had expected a reading of 53.0.

Any figure over 50 shows that the manufacturing sector is expanding.

The limited losses helped US markets make gains, with the Dow Jones closing up 0.7% and the Nasdaq adding 1.3%.

Construction fall

"The modest decline in the ISM manufacturing index suggests that the turmoil in financial markets is so far having only a limited impact on the real economy," said analysts from Capital Economics.

"At its latest level, the index is consistent with GDP growth of roughly 2.75%. While that's a bit below the economy's potential, it suggests that recent talk of an imminent recession are, at best, premature."

The market performance was despite Commerce Department data showing that construction activity had plunged in July, with spending on homes falling for a 17th straight month.

The two pieces of data made it more likely that the Federal Reserve would cut interest rates at its next meeting on 18 September, analysts said.

Stock markets have suffered heavy falls amid concern over how firms such as banks may be exposed to the US sub-prime mortgage market.

Sub-prime mortgages are offered to people with poor credit histories, but default rates on these loans have been rising in the US as a result of rising mortgage rates.

The fallout from the slump has continued with more mortgage and property companies reporting trouble.

Lender NovaStar Financial said on Tuesday that it was cutting jobs, with its auditor expressing doubts that the company would survive.