* Global factory contraction show signs of slowing
* U.S., euro zone, UK factory indexes rise in March
* Indexes still far from recovery threshold (Updates with U.S. ISM, changes dateline, previous London)
By Richard Leong and Nigel Davies
NEW YORK/LONDON, April 1 (Reuters) - Global manufacturing activity continued to contract in March but at a slower rate than in recent months, as the United States, Britain and the euro zone all showed improvement, according to private data released on Wednesday.
An index on global manufacturing activity, produced by JP Morgan, rose to a reading of 37.2 in March, its highest level in five months, from 35.8 in February.
The March readings, however, were far below the levels of last year.
"It seems as if we are bouncing along the bottom. Things aren't improving but it doesn't look as if the situation is deteriorating," said Jack Bauer, senior economist at Manning & Napier in Rochester, New York.
On a regional basis, the Institute for Supply Management reported its index on U.S. factory activity rose to 36.3 from 35.8 in February, slightly above the median forecast for a reading of 36.0 See [ID:nN01486265].
In the euro zone, an index of about 3,000 manufacturing purchasers rose to a reading of 33.9 in March from 33.5 the previous month [ID:nL1217903], while a similar gauge on UK manufacturing posted a bigger bounce, up to 39.1 from 34.9 in February [ID:nL186671].
The latest factory data sparked optimism among U.S. and European investors, driving up stocks on both sides of the Atlantic and spurring a rise in sterling against the euro.
Analysts, however, said it is too early to judge whether the manfacturing sector and the global economy are on the cusp of an upturn.
SHRINKING ECONOMIES
The March manufacturing upticks in the United States, UK and euro zone fell far short of what economists say is needed to stop further contraction in those economies in the just-ended first quarter.
The ongoing fallout from shrinking global demand and the credit crisis, such as soaring unemployment, will ripple through the economy for some time, economists said.
"There are a few spots where we can have hope ... but for the time being it's all hope. There are no clear signals that the recession will end any time soon," said Juergen Michels, an economist at Citigroup in London.
This grim predicament is also plaguing Asia's two biggest economies. The pace of factory decline accelerated again in China in March, but the economy there still looks to be past the worst of its downturn [ID:nPEK265513].
In Japan, business confidence crashed to a new low in March as the index for large service-sector firms fell to its lowest level since 1999 in another sign of how the slump in exports is seeping through the country's economy.
Wednesday's manufacturing data follows a grim economic outlook by the Organization for Economic Coperation and Development.
The OECD on Tuesday revised its outlook for this year, saying its now seeings its members' economies would contract by 4.3 percent in 2009, compared to its forecast for a contraction of 0.4 percent made last November.
The OECD said international trade would slump 13.2 percent this year, dragging down export reliant-economies like Germany and Japan.
Data from the 16-nation euro zone bloc will pressure the European Central Bank to trim interest rates to a new low at its policy meeting on Thursday. Economists widely expect the ECB will cut rates by 50 basis points, wihch would bring the the central bank's benchmark refinancing rate to 1 percent. [ECB/INT]
"The ECB will do another 50 basis points tomorrow and probably extend the liquidity provision to banks," Citigroup's Michels said. (Additional reporting by John Parry in New York, Alan Wheatley in Beijing, Fiona Shaikh in London, Tetsushi Kajimoto and Leika Kihara in Tokyo; Editing by Leslie Adler)