(Updates with economists' comment, market reaction)
* Euro zone factory PMI at six-month high, revised up
* Data still points to sharp contraction in sector
* Output, new orders, exports indexes rise to 6-month highs
* Inventories run down at fastest pace in survey history
By Nigel Davies
LONDON, May 4 (Reuters) - Euro zone manufacturing activity declined at its slowest pace in six months in April, and there were signs across its four leading economies that the worst of a severe recession may be over, a survey showed on Monday.
The data also showed factories de-stocking at the fastest rate in at least 12 years and slashing jobs at a close to record pace. The survey will likely encourage the European Central Bank to take more steps this week to aid a fragile economy.
Markit's Final Eurozone Manufacturing Purchasing Managers' Index of around 3,000 companies rose to 36.8 in April from 33.9 in March. That was a touch higher than the 36.7 flash reading and was its best level since last October.
It was, though, the 11th consecutive month below the 50.0 mark that divides growth from contraction.
The index was pulled higher in April by a sharp slowdown in the pace of contraction in France, Italy and Spain, where the country PMIs rose to a six-month high.
Even the index for Germany, hardest hit by the collapse in global demand for manufactured goods, rose to a five-month high.
Financial markets and the euro both shrugged off the data.
"It is still clearly recessionary but it can be said quite safely that the worst is behind us both in terms of industrial decline and of GDP," said Marco Valli at Unicredit.
He said signs of rapid de-stocking at factories was positive for the sector and he would not be surprised to see the PMI rise significantly over the next two to three months.
The euro zone economy contracted by 1.6 percent in the fourth quarter of last year and economists forecast it to have shrunk at a similar rate in the first three months of the year.
But that contraction appears to be slowing heading into the second quarter.
Indications that the worst may be over for the euro zone are unlikely to deter the ECB from cutting rates to a new historic low of 1.0 percent when it meets later this week. The central bank could also reveal other measures it has to fight a bruising recession, according to the latest Reuters poll. [ECB/INT]
The euro zone data chimed with a report on Friday that showed U.S. manufacturing activity still deep in recession territory, but shrinking at a slower pace.
While still pointing to double-digit drops in manufacturing production, the output index for the euro zone rose to a six-month high of 36.2 from 33.4 in March, revised up from the 35.9 flash reading.
The indexes for new orders and export orders rose to seven and six-month highs, respectively.
Stocks of finished goods fell at the fastest pace in the survey's close to 12-year history, opening up the prospect that new orders will require some pickup in output.
"With demand still fragile, it would be risky to assume that this inventory-led increase will prove sustainable. The road to recovery is rarely a smooth one," said Martin Van Vliet at ING.
Huge factory job cuts are likely to persist for some time, increasing job insecurity and making people reluctant to spend. The employment index crept up in April, but remained close to the record low recorded last month.
Official unemployment rose to 8.9 percent in March, while in Spain it rose above 17 percent in the first quarter.
The survey also indicated that price pressures faced by euro zone factories held close to record lows while picking up slightly in April. Inflation in the 16-nation bloc remained well under the ECB's 2.0 percent ceiling in that month.
(Editing by Mike Peacock)