(adds analysts' comments, franc, background)
By Sven Egenter
ZURICH, Jan 5 (Reuters) - Switzerland's manufacturing sector contracted for a fourth month running in December, the Swiss purchasing managers' (PMI) showed on Monday, though the speed of decline unexpectedly slowed.
The Credit Suisse/SVME Purchasing Managers' Index (PMI) ticked up to 36.9 points from a record low of 35.2 hit in November, Credit Suisse said.
The December level was above even the most optimistic economist's forecast in a Reuters poll, which gave a median reading of 34.7 points, but was still the second lowest since the survey began in 1995.
"The three-month average shows clearly that the industry is applying the brakes," Credit Suisse said.
Analysts said the weak PMI confirmed the recent slump in other economic indictors such as the KOF growth barometer, which it a fresh 5-1/2 year low in December.
"The global downturn has reached the Swiss manufacturing industry," Sarasin analyst Alessandro Bee said.
The PMI for the euro zone, Switzerland's main export market, hit a fresh record low in December and the decline in the U.S. manufacturing sector also picked up speed.
Most economists see the overall Swiss economy already in recession and the Swiss National Bank expects gross domestic product to shrink between 0.5 and 1.0 percent this year after growing by nearly 2 percent in 2008.
The SNB has slashed its target rate for the 3-month Swiss franc LIBOR by a total of 2.25 percentage points since October to just 0.5 percent and is expected to ease conditions further.
"There might be one more rate cut. After that, much depends on the Swiss franc," Sarasin's Bee said, adding that the SNB would react if the franc appreciated on a sustained basis.
The SNB has said it might use unconventional policy measures such selling francs to support the export-dependent economy.
The franc gained over 10 percent against the dollar and around 3 percent against the euro in December. On Monday, the franc dropped as investors turned from the traditional safe haven currency to riskier assets such as stocks.
The PMI survey showed companies reduced production at a much slower pace than in November, with the output component posting the strongest monthly increase in the survey's history.
However, companies slashed jobs at a higher rate, with the employment indicator hitting its lowest level since August 2003.
So far, Swiss consumer spending has counterbalanced some of the sharp slowdown in exports and company investment as the labour market is still close to full-employment with the unemployment rate at 2.7 percent.
"Consumption has not been hit so far, judging by the upbeat news from retailers after the Christmas season," Bee said. (Reporting by Sven Egenter, editing by Mike Peacock and Andy Bruce)