Irish manufacturing has contracted for the second month in a row in tandem with the performance of the sector across the EU where output levels have dropped to a record low.

The latest NCB purchasing managers index dropped from 48.9 in August to 47.7 in September as the rate of decline accelerated. Generally readings below 50 signal contraction and above 50 signal growth.

The latest Reuters European PMI, also published yesterday, dropped to 46 in September - its lowest level since the series began in June 1997.

Economists said the survey would increase pressure on the European Central Bank for further interest rate cuts, which it reduced to 3.75 per cent after the attacks.

"We would look for at least a quarter of a percentage point and if not a half at the ECB's meeting on October 11th," said Mr Jeremy Hawkins at Bank of America in London.

The Irish survey of members of the Institute of Purchasing and Materials Management was taken after the September 11th attacks on New York and Washington. However, Mr Dermot O'Brien, chief economist at NCB, warned that the ramifications of the attacks could not realistically have shown up so early. "The survey suggests activity continued to weaken before the attack on the US, with the poor external environment remaining the key influence." Output has also fallen below the key 50 level while employment has fallen for the third month in a row though both natural wastage and forced redundancies.

The lack of incoming new orders was the main cause of falling activity. Exports orders were hit hard by the uncertain economic climate, falling for the fifth month in a row in September. Firms also reported that demand from domestic sources also weakened over the month. At the same time firms reduced production levels for the first time in the three and half years of the survey's history. The cost of manufacturers inputs also fell over the month as falling demand for raw materials forced down the cost. However, the pace was slightly slower than the previous months on the back of slightly higher oil prices. More evidence of falling producer price inflation came in Italy's August PPI, Mr Jose Luis Alzola of Solomon Schroder Smith Barney noted.

European manufacturing PMI dropped to 46 in September - its lowest level since the series began in June 1997. Output fell to its lowest level ever, suggesting that the contraction in activity intensified towards the end of the third quarter.