By Tamora Vidaillet
PARIS, Feb 2 (Reuters) - French manufacturing activity contracted in January at a slower rate than the previous month, adding to hopes that the downturn may not be getting much worse, a survey showed on Monday.
Final data from the Markit/CDAF purchasing managers' index (PMI) for manufacturing -- which covers everything from makers of cars to designer luggage -- showed its headline indicator rising to 37.9 in January from 34.9 in December, a record low.
In the PMI survey, a reading below 50 denotes contraction, and above 50 means expansion.
The January figure represented the third-lowest reading in the series history, pointing to still extreme conditions as the global economic crisis continues to pummel demand and production.
"It has rebounded slightly, so this is raising our hopes that December represented a bottom of the rate of contraction for manufacturing in France," said Markit chief economist Chris Williamson.
"Hopefully we won't see any further worsening in the rate of contraction, but it's going to be a very difficult year because employment tends to lag output," he said, adding that job losses could weigh more heavily on consumption.
The business environment for manufacturers remained bleak last month as new orders fell for an eighth straight month and at a steep rate of contraction.
Job cuts persisted for the ninth successive month and were the sharpest since the survey began in April 1998. That index fell to 35.8 from December's 37.9.
Growth was unlikely to return to manufacturing activity in the euro zone's second-biggest economy before the tail-end of 2009, said Markit's Williamson.
But the report follows separate data from national statistics office INSEE showing consumer confidence in January improved although business morale stayed stuck at a record low, raising expectations that the worst may be over.
France hopes that steps taken to shore up the balance sheets of its lenders and a 26 billion euro ($34.01 billion) economic stimulus plan unveiled in December will cushion the impact of the worst global market conditions in decades.
But headwinds for the manufacturing sector could persist beyond many economists' expectations if credit conditions remained challenging.
"If current conditions in the credit conditions and so forth stay as they are, then we've got problems," Williamson said. ($1=.7645 Euro) (Reporting by Tamora Vidaillet; Editing by Ruth Pitchford)