GLOBAL ECONOMY-Euro zone factories show signs of recovery but Asia weakens as US tariffs sap confidence

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Euro zone factories showed signs of meaningful recovery in March

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Japan, S. Korea, Taiwan saw factory activity shrink

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China's private survey showed rebound in factory activity

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China's rebound seen as short-lived as tariff hits exports

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By Jonathan Cable and Leika Kihara

LONDON/TOKYO, April 1 (Reuters) - Factory activity showed early signs of a meaningful recovery in the euro zone in March but mostly weakened around Asia as an intensifying U.S. tariff war and slowing global demand hurt business sentiment, darkening the outlook, surveys showed.

U.S. President Donald Trump is set to announce a comprehensive tariff proposal on what he's called "Liberation Day" on Wednesday, after implementing levies on aluminium, steel, and automobiles, along with increased tariffs on all goods from China.

Still, the euro zone's long-suffering manufacturing industry showed initial signs of a meaningful recovery last month as output rose for the first time in two years, its PMI showed, but the upswing could be hurt by the trade tariffs.

HCOB's final euro zone manufacturing Purchasing Managers' Index, compiled by S&P Global, bounced to 48.6 in March, just below a preliminary estimate for 48.7 yet much closer to the 50 mark separating growth from contraction. The index has been below that line since mid-2022.

A measure of output, which feeds into a composite PMI due on Thursday, jumped to 50.5 from 48.9.

"Things are looking up. The PMI has increased for the third month in a row and the output index even surpassed the threshold for growth," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"A significant part of this movement may have to do with the frontloading of orders from the U.S. ahead of the tariffs, which means some backlash is to be expected in the coming months."

Inflation in the region eased as expected last month and a key measure of underlying price pressures also fell, likely adding to already widespread expectations for another European Central Bank interest rate cut later in April, official data showed.

"March's big decline in euro zone services inflation strengthens the case for the ECB to cut interest rates at the meeting on April 17," said Jack Allen-Reynolds at Capital Economics.

In Germany, Europe's largest economy, there were also signs of recovery with its first production increase in nearly two years, while the downturn eased in France.

But British manufacturers endured a torrid March as the tariff threat and impending tax increases contributed to a plunge in new orders and ebbing optimism.

Investors remain nervous, but global stocks rose on Tuesday following Wall Street's overnight gains while gold hit an all-time peak.

ASIAN STRAIN

China was one outlier among a broadly downbeat set of Asian purchasing managers' indexes, showing activity in the world's second-largest economy picking up, as factories rushed to get goods to customers before U.S. tariffs took effect.

The prospect of a widening global trade war is adding to headaches for policymakers as they seek to cushion the hit to growth and manage inflationary pressures from rising costs.

Elsewhere in Asia, Japan, South Korea and Taiwan saw manufacturing activity decline in March, the surveys showed, as companies braced for more uncertainty on U.S. trade policy.

China's Caixin/S&P Global manufacturing PMI climbed to 51.2 in March from 50.8 in the previous month, exceeding market expectations and staying above the 50.0 mark.

The rebound broadly aligned with an official PMI released on Monday that showed manufacturing activity growing at its quickest pace in a year.

But analysts expect the relief to be short-lived as the trade war threatens to undermine momentum. Trump has imposed a cumulative 20% tariff on Chinese imports since January and is expected to announce additional "reciprocal" tariffs this week.

"The rise in the Caixin manufacturing PMI mirrored its official counterpart, with both surveys suggesting that China's industrial sector is benefiting from a combination of tariff front-running and fiscal support," said Julian Evans-Pritchard, an economist at Capital Economics. "It won't be long before U.S. tariffs turn from being a tailwind to being a drag, however."

Japan's factory activity fell at the fastest pace in a year, its PMI showed and extended declines for a ninth straight month.

South Korea's factory activity declines also sped up, hit by weak domestic demand.

Taiwan's PMI fell to 49.8 in March from 51.5 in February, while that for Vietnam rose to 50.5 from 49.2.

Other indicators on Tuesday showed softness across the region with South Korea's exports growing slower than expected and Japan's closely watched tankan survey showing big manufacturers' business sentiment hitting a one-year low. (Reporting by Jonathan Cable and Leika Kihara; Editing by Sam Holmes and Hugh Lawson)