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Factory activity rebounds in July: Markit

Todd Ruble is seen inspecting an instrument panel piece in the forming department during a tour of the Honda automobile plant in Marysville,
Todd Ruble is seen inspecting an instrument panel piece in the forming department during a tour of the Honda automobile plant in Marysville,

NEW YORK (Reuters) - Conditions in the U.S. manufacturing sector improved in July as firms enjoyed a rebound in new orders, took on new workers and increased output at the fastest clip in four months, an industry report showed on Wednesday.

Financial data firm Markit said its "flash," or preliminary, U.S. Manufacturing Purchasing Managers Index rose to 53.2, a four-month high, from 51.9 in June. A reading above 50 indicates expansion.

Output rose to 54.0, also the highest since March, from 53.5 in June. Domestic demand rose and new export orders rebounded after contracting in June.

As workloads increased, firms took on more workers, with the employment sub-index rising to 52.6 this month from 49.9 in June.

But the rate of job creation remained "disappointingly weak" and well behind the pace seen at the start of the year, said Markit chief economist Chris Williamson, who added that firms are still focusing on cost-cutting to boost competitiveness.

The "flash" reading is based on replies from about 85 percent of the U.S. manufacturers surveyed. Markit's final reading will be released on the first business day of the following month.

While the manufacturing rebound bodes well for U.S. growth in the third quarter, it is unlikely to persuade the Federal Reserve to hasten the end of its massive stimulus program.

"It is likely that policymakers will generally need to see growth strengthen further before sounding more confident about the ability of the economy to withstand any tapering of stimulus," Williamson said.

In a July 5 Reuters poll, the majority of economists at large Wall Street firms said they expected the Fed to start shrinking the size of its debt purchase program by September. The poll was conducted after government data showed the economy had added more jobs than expected in June.

Fed Chairman Ben Bernanke has signaled plans to slow down the stimulus program as long as the economy continues to recover as expected. But he also told Congress last week that the central bank's $85 billion in monthly bond purchases "could be maintained for longer" if the labor market outlook were to darken.

(This story changes last word in paragraph 5)

(Reporting By Steven C. Johnson; Editing by Chris Reese)

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