Indian manufacturing activity contracted for the second consecutive month in December to its lowest in more than 3- years as the impact of the global slowdown on Asia's third-largest economy deepened, a survey showed on Friday.

The ABN AMRO Bank purchasing managers' index (PMI) , based on a survey of 500 companies, fell to a seasonally adjusted 44.4 in December, falling for the fourth consecutive month to its lowest since the survey began in April 2005 and below November's 45.8.

A reading above 50 signals economic expansion while a figure below 50 suggests contraction.

In a bid to boost flagging economic growth, which is expected to slow to 7 percent this year from 9 percent in 2007/08, the government has unveiled a multi-billion dollar stimulus package and the central bank has cut interest rates aggressively.

Gaurav Kapur, senior economist at ABN AMRO Bank N.V., said conditions were unlikely to improve in the near future and the benefits from measures taken by authorities would take time to filter through.

"Until such time, the manufacturing sector will have to cope with contracting demand, especially on the exports front and stalling investment activity," Kapur said.

Manufacturing makes up about 16 percent of India's gross domestic product.

The PMI survey, which is compiled by UK-based Markit Group, comes well ahead of official statistics. The latest available data released in early December showed industrial output had contracted 0.4 percent in October from the previous year.

Bloody militant attacks on the financial centre Mumbai in late November may have added to the investor gloom.

All the indexes covered by the PMI report fell to their lowest in the series.

Firms cut jobs for the first time in the survey's history to reduce costs as incoming new orders fell sharply and spare capacity at factories rose sharply, indicating shrinking activity.

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