UPDATE 1-Czech Oct PMI extends dip, points to weaker growth

(Adds analyst quote, background on economy, interest rates)

By Marek Petrus

PRAGUE, Nov 1 (Reuters) - Growth in Czech manufacturing activity slowed in October, with the Purchasing Managers' Index falling for a second consecutive month to a 9-month low.

The PMI, released on Wednesday, dropped in October to 54.6 from 55.4 in September. The index, sponsored by ABN Amro, is compiled by NTC Research from a survey of over 300 firms.

A weakening manufacturing expansion could hamper growth in the overall Czech economy, which peaked at 7.1 percent in the first quarter. The sector accounts for more than a third of Czech economic activity.

But a revival in consumer spending, fed by rising wages and a credit boom, could cushion the slowdown and help to keep annual growth close to the 6.2 percent rate reached in the second quarter.

Manufacturing output and new orders showed the weakest growth in 15 months and the rate of job creation also slowed in October, the PMI survey suggested. Output expansion was weaker than the long-run survey average.

But the slowdown in new orders appeared centred on the domestic market, as export orders expanded at a faster rate than in the previous two months.

"It now remains to be seen if the slowdown in the rate of expansion in manufacturing is only temporary," said Zsolt Papp, economist at ABN Amro in London. "As a side effect, the PMI figures also signal a slowdown in output price inflation, which would ease CPI inflation risks going forward," he added.

Investors have bet that an expected fall in consumer inflation before the year-end could allow the central bank to extend a pause in monetary tightening following two 25 basis point interest rate increases in July and September.

((FOR A BREAKDOWN OF THE SURVEY, CLICK ON [nPRA001001]))

((Reporting by Marek Petrus; Editing by David Stamp; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH PMI