US manufacturing contracted for the third month in a row in April, a further sign that the world's largest economy has slowed down.

The Institute for Supply Management's (ISM) factory activity index was 48.6, the same as in March. A below-50 reading shows output is falling.

However, the figure was stronger than many economists had been predicting.

The Federal Reserve cut interest rates to 2% on Wednesday to try to avoid a recession in the US.

US stock markets responded positively to the better-than-expected performance of the manufacturing sector.

"The economic numbers haven't looked that bad to tell you the truth, which is why we're seeing the market heading toward the higher end of its range. This confirms all that," said Ohio-based investment advisor Alan Lancz.

Higher costs

US economic data is closely scrutinised for indications of how serious the slowdown of the economy will be.

"Manufacturers are in a situation where both new orders and production are slowly declining, but prices continue to rise at highly inflationary rates," the ISM said in a statement.

But on a more positive note, the institute said new export orders continued to be strong.

Members of the institute reported that demand for their goods was falling, and they were being hit by the rising cost of food and raw materials.

With the declining value of the dollar, those factories importing their raw materials saw their costs rise further.

(BBC)

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