The economy's manufacturing sector recorded its strongest level of growth for almost two years in June, buoyed by strong exports of chemicals, computers and software, according to the latest NCB purchasing managers' index (PMI). The seasonally adjusted index for June rose to 54.5, up from 52.3 in May.

Employment in the sector grew at the fastest rate for almost 18 months, albeit at a modest rate in real terms.

The employment index was up to 52.2 from 50.2 in May, when seasonally adjusted.

Mr Eunan King, senior economist at NCB Stockbrokers, said the report was very encouraging given that output and orders were back to 2000 levels. "Moreover, this is not an inventoryrebuilding bounce since stocks remain lean," he said.

"Rather, growth appears sustainable, being based on improved business conditions, new product lines and increased marketing activity."

He said chemicals, computers and software combined accounted for 76 per cent of all Irish exports in the month.

Mr King added that similar surveys released yesterday for the US and euro zone showed the Irish manufacturing sector was performing well comparatively. The report card for US manufacturers was also good but other euro-zone countries had a more difficult time.

In the US, the overall index rose to 56.2 in June, its highest level since June 1999, compared with 55.7 in May.

In the euro zone, the index posted a very modest increase to 51.8 in June from 51.4 in May. Mr King said the latest figures showed the euro zone was "just hanging on to growth".

Firms surveyed for the Irish index said the US and UK were their strongest markets. As well as the growth in order books, Irish firms increased their output for the sixth consecutive month, with surveyed firms stepping up production in order to keep pace with growth in new business.

Arising from the increased output, firms also stepped up the level of goods purchased for the second month in succession.

However, this increase was lessened by the fact that many firms opted to run down existing inventories rather than re-stock.

Input costs rose for the third consecutive month, having fallen in the second half of 2001 and during the first quarter of 2002. This rise in costs was attributed to a shortage of goods with suppliers, which pushed up prices.

Manufacturing employment rose for the second month in a row following 10 months of lay-offs previously.

"In general, panel firms were reported to have increased staffing levels at their units to meet current demand and in anticipation of further growth of new business.

"However, the pace of growth of employment was modest, despite being the fastest for almost one-and-a-half years," NCB noted.