The Irish manufacturing sector continued to grow in February, although at a reduced rate, according to the latest NCB Purchasing Managers Index.

The index, which aims to measure the manufacturing sector's economic health, recorded an improvement in business conditions for the thirteenth consecutive month but found that staff levels fell.

Its 52.4 figure points to a moderate rate of expansion and is the lowest figure recorded since August 2005.

Commenting on the index yesterday, NCB chief economist Dermot O'Brien said the figure was a little disappointing.

"Though manufacturing activity continued to grow, the pace of growth slowed for the third month in a row and employment fell for the first time in seven months," he said.

Mr O'Brien said that a fall in export orders appeared to have been the main reason for the deterioration, with manufacturers citing increased competition in export markets.

"Domestic demands remains robust, however, and overall orders continued to grow in February, albeit more modestly than in earlier months," he said.

The continued improvement in business conditions was supported by the sustained growth of new business.

According to NCB the rate of growth of new work remained robust despite slipping to a sixmonth low.

Firms reported that the latest increase in production was the result of higher new order volumes from existing and new clients.

Input cost-inflation remained sharp, despite easing, as firms continued to report paying higher prices for fuel and a range of raw material inputs.

Improvements in output were achieved despite staffing levels falling in February, as firms aimed at staff cost reductions. This followed expansion of the workforce in each of the previous six months.

However, the rate of decline in employee numbers was only marginal.

The euro-zone manufacturing sector grew at its fastest pace in 19 months in February, led by a robust performance in Germany and Italy, but companies continued to cut jobs.

Surging output and new orders pushed the RBS/NTC euro-zone Manufacturing Purchasing Managers' Index one point higher to 54.5, its highest level since July 2004 and above the consensus forecast for a rise to 54.0.

On a national basis, manufacturers in Germany put in their best performance in 19 months, while the Italian index hit its highest level in more than five years.

Both were boosted by external demand for capital goods, coupled with a pick-up in domestic demand. However, the euro-zone employment index inched up only marginally to 49.7 from its January's 49.6 mark, staying below the 50 line which marks the balance between growth and contraction.

Manufacturers have cut jobs in all but one of the past 57 months, the exception being last December.

Although Germany, Austria and Greece reported modest increases in staff numbers, other countries experienced a reduction in job numbers.

This was despite signs that companies are no longer quite coping with the influx of new orders, which could bode well for staffing levels in the future.

The backlogs-of-work index rose to its highest level since May 2004, at 53.8 from January's 53.1. Companies also dug deep into their warehouses in an attempt to fulfil their orders, as the stocks of finished goods index, at 47.8, contracted for the eleventh month in succession.

(Additional reporting by Reuters)