* Polish Oct PMI at 48.8, 17-month high
* Czech PMI up to 49.8, vs 49.5 in Sept
* Hungarian PMI, different method, drops to 48.2, from 49.0
By Michael Winfrey
PRAGUE, Nov 2 (Reuters) - Czech and Polish manufacturing edged closer to recovery in October but failed to breach the break-even point, data showed on Monday, and economists said momentum for a rapid industrial recovery may be waning.
Industry-heavy central Europe is clawing its way out of the crisis with a gradual pick-up in demand from its main trading partner, the euro zone, although analysts say the path back to steady growth will be long and slow.
Factors including tough lending conditions, tighter budgets, persistently sluggish consumer demand, and the end of stimulus packages like Germany's car scrap subsidies have complicated a picture of improving sentiment in Germany and France. In the Czech Republic, October manufacturing crept up to 49.8, from 49.5 in September, staying below the 50 mark that marks the border between a rise and a fall for the 16th straight month, the HSBC Purchasing Managers' Index (PMI) showed.
In Poland, PMI rose in October for the sixth month running to 48.8 points, its highest level in 17 months. It was bigger improvement than a .02 point rise in September.
Analysts said the data was generally positive but they sounded a note of caution, saying an expected rebuilding of inventories seen as crucial to the recovery may take longer than previously expected.
"The PMIs generally still signal a recovery in output but momentum has weakened," said Raffaella Tenconi, chief economist at Wood & Co.
"Rebuilding of inventories should definitely help in the near term, but waning momentum may be a signal that inventory accumulation is not taking place very quickly, as producers are still uncertain about the true extent of the demand rebound next year."
In Hungary, which compiles PMI with a different methodology, the figure slipped to 48.2 in October from 49.0 in September, the Association of Logistics, Purchasing and Inventory Management said.
SHALLOW RECOVERY
Euro zone PMI data also released on Monday showed manufacturing expanded for the first time since May of last year, with a 26-month high in new orders and a similar rise in output.
If confirmed in actual production data, the result should translate into improved sentiment and higher output for the Czech Republic, Hungary, and Poland, the last of which being the only EU state to avoid contraction in the crisis.
Market reaction was subdued. The Polish zloty inched up 0.1 percent to 4.253 to the euro by 0858 GMT, and the Czech crown added 0.3 percent to 26.435 to the euro.
For the Czechs, production rose above the 50 point mark for the third month in October but the pace of growth eased slightly, signalled by a fall in the output index, the data distributed by Markit economics, showed.
Analysts said the data would not affect a central bank rate meeting on Thursday at which policymakers are expected to keep the cost of borrowing on hold at an all-time low of 1.25 percent.
But they added a winding down of stimulus in the euro zone meant positive signals may not last, particularly since the German car scrap subsidy had ended and could hit orders in the country's economy-dominating car industry.
"It seems that the most likely (Czech) scenario is a W-shape recovery as signs of improvement driven by substantial fiscal stimulus packages implemented across the EU may not prove sustainable," said Piotr Matys, an analyst at 4CAST.
Poland, less dependent on foreign demand due to its population of 38 million, new orders broke the 50 neutral level for the first time since April of last year, while output declined slightly from September but still remained in positive territory.
Analysts said they expected the overall figure to breach positive territory only in 2010.
"A slight growth in PMI is probably due to the German economy gaining momentum, which is confirmed by the latest growth in the Ifo index. But concerns over recovery remain, so we still lack a bit to top the 50 points mark," said Grzegorz Ogonek, economist at ING Bank Slaski in Warsaw.
"We expect PMI to breach 50 points in the first quarter of next year, when industrial output may also be positive." (Additional reporting by Warsaw, Prague and Budapest bureaus; editing by Stephen Nisbet)