September factory activity expands for second straight month - PMI

BENGALURU (Reuters) - Indian manufacturing activity expanded for a second consecutive month in September although firms struggled to sustain demand, with the price of goods barely increasing, a business survey showed on Tuesday.

The Nikkei/Markit Manufacturing Purchasing Managers' Index, compiled by IHS Markit, held steady at August's 51.2 last month, its second month above the 50 mark that separates growth from contraction.

Analysts polled by Reuters had forecast the index at 51.9.

"Output and new business growth remained weak in the context of historical survey data. The lingering effects of recent economic shocks continue to cast a shadow on economic growth," said Aashna Dodhia, an economist at IHS Markit.

The new orders sub-index, a proxy for domestic demand, fell to a three-month low of 51.0 in September from 51.5, discouraging firms from increasing output faster. Foreign demand fell.

Demand in Asia's third-largest economy has been wobbly following the government's decision late last year to scrap high value banknotes while a new goods and services tax has dampened consumer spending and production further.

India's economic growth plunged to a three-year low of 5.7 percent in the April-June quarter.

To attract demand, firms continued to absorb most of the cost pressure in September, suggesting inflation is unlikely to exceed the Reserve Bank of India's 4 percent medium-term target soon.

A separate Reuters poll showed the central bank is expected to hold policy steady at its Oct. 4 meeting and well past next year.

(Reporting by Vivek Mishra; Editing by Sam Holmes)