US manufacturing activity increased more than expected in February; Markit's preliminary US manufacturing index rose to 56.7 from final reading of 53.7 in January

NEW YORK , February 20, 2014 () – U.S. stock futures reversed early losses after a gauge of manufacturing rose more than forecast, overshadowing data showing Chinese manufacturing shrank amid concern over growth prospects for emerging markets.

Futures on the S&P 500 expiring in March rose 0.2 percent to 1,828.7 at 9:05 a.m. in New York. Dow Jones Industrial Average contracts increased 14 points, or 0.1 percent, to 16,030.

The Markit Economics preliminary index of U.S. manufacturing increased to 56.7 in February from a final reading of 53.7 last month, the London-based group said today. A figure greater than 50 for the purchasing managers’ measure indicates expansion. The median forecast in a Bloomberg survey called for 53.6, with estimates ranging from 52.5 to 55.

Another report from the Labor Department showed fewer Americans filed applications for unemployment benefits last week, a sign employers are holding the line on firings even as cold weather slowed industries from manufacturing to housing. Jobless claims declined by 3,000 to 336,000 in the week ended Feb. 15. The median forecast of 53 economists surveyed by Bloomberg called for a drop to 335,000.

The S&P 500 slumped as much as 5.8 percent after reaching a record on Jan. 15 as investor concern about Federal Reserve tapering fueled a rout in emerging markets. It subsequently rose 5 percent from a Feb. 3 low through yesterday’s close, climbing to within one point of its all-time closing high.

The benchmark index slid 0.7 percent yesterday as minutes from the Fed’s January meeting showed policy makers may soon change their guidance for interest rates as unemployment falls toward a threshold for considering an increase in borrowing costs. Several officials also said that, barring an “appreciable change in the economic outlook,” they would favor reducing the pace of bond purchases by $10 billion at each meeting.

Fed Stimulus

The Fed decided at its January meeting to press on with a second cut of $10 billion to its bond buying. Three rounds of stimulus have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

The International Monetary Fund said yesterday the global recovery is still weak and “significant downside risks remain,” citing increasing political tensions from Ukraine to Thailand, China’s slowdown and the Fed’s tapering of its stimulus as reasons for falling stocks and currencies in emerging markets.

In China, the preliminary February reading of a purchasing managers’ index by HSBC Holdings Plc and Markit Economics was 48.3, trailing the 49.5 projection of economists surveyed by Bloomberg. The figure compares with a final reading of 49.5 in January and is the lowest in seven months. Numbers below 50 mean that activity contracted.

“The weakness in equities is to a greater degree due to the uncertainty in the outlook for emerging markets, with China being central as the world’s second-biggest economy,” Keith Bowman, an equity analyst at Hargreaves Lansdown Plc in London. “The economic prospects for the country do remain important for investors.”

Equity futures slumped earlier amid continued turmoil in emerging markets. The MSCI Emerging Markets Index dropped 1 percent as at least seven people died in new clashes after a truce declared last night by Ukrainian President Viktor Yanukovych and opposition leaders foundered.

--Editors: Michael P. Regan, Jeremy Herron

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