By SUDEEP REDDY in Washington, MARCUS WALKER in Berlin and ANDREW BATSON in Beijing

Factories around the world are ratcheting up production, fueling optimism that the global economic recovery has legs.

The U.S. manufacturing index in March registered its best reading since 2004, and China's manufacturing sector grew for the 13th straight month. Most euro-zone nations also have seen strong factory expansion, with Germany last month posting its best manufacturing growth in a decade. Only Greece, which is struggling with debt problems, contracted.

This growing manufacturing muscle is one reason that most economists now dismiss the possibility that the U.S. or other major economies will experience a double-dip recession.

"We're carrying a lot of momentum into the second quarter," says Norbert Ore, head of the U.S. manufacturing survey, who says increasing exports and imports mean growth is spilling across borders. "Barring anything that really becomes a major challenge to the economy that we don't know about right now, I think we can carry this momentum through the balance of 2010."

Thursday's manufacturing data helped drive stocks higher, though traders also were keenly interested in jobs data due out Friday, when major U.S. stock exchanges will be closed for a holiday. The Dow Jones Industrial Average rose 70.44 points to 10927.07 on Thursday, with Alcoa Inc. and other commodity producers that stand to benefit from improved demand for raw materials leading the gains.

Meanwhile, General Motors Co. and Honda Motor Co. each reported a jump of more than 20% in new-vehicle sales last month, while sales at Ford Motor Co. and Toyota Motor Corp. climbed about 40% each.

The broader economy, of course, still faces considerable head winds. They include lingering effects of the global credit crunch, uncertainty about the withdrawal of extraordinary government support and restrained demand caused by high unemployment.

Evidence of the factory revival came in surveys of purchasing managers, who buy goods and raw materials needed to churn out products. In the U.S., the Institute for Supply Management's manufacturing index rose in March to 59.6, from 56.5 the month before. China's index rose to 55.1 last month, from 52 the month before. Figures above 50 indicate expansion.

In terms of output, manufacturing in many parts of the world remains far from its prerecession high. In the euro zone, factory output in January was 16% below its peak in April 2008, while U.S. factory output in February was 12% below its prerecession high. Only Asian output is above the level it reached before the financial crisis.

Manufacturing often is one of the first parts of the economy to revive after a recession. But this recession was deeper and longer than any downturn since the Depression. Big parts of the U.S. and global economies—including real estate and consumer spending—show continued strain.

Many U.S. employers remain reluctant to hire. The ISM survey showed that manufacturing employment continued to improve in March, though at slower pace than the month before. Separate data from the U.S. Labor Department showed that new jobless claims fell by 6,000 to 439,000 last week. The department releases its closely watched snapshot of the March job market on Friday.

U.S. manufacturers remain dependent on foreign demand. "The world has gotten smaller, and a lot of us are much more global," says Tim Sullivan, chief executive of Bucyrus International Inc., a Milwaukee-based manufacturer of mining machinery. The company, which is adding about 500 workers to its 2,500 U.S. employees, is drawing about 80% of its business from abroad, mostly Brazil, Russia, India and China.

"It's really a tale of two worlds right now," Mr. Sullivan says. "The Western Europe and U.S. economies are going to recover, but they're going to recover slowly."

China's manufacturers are the furthest along. The factory sector there turned up in March 2009 as a big stimulus program took hold. In recent months, overseas orders started to return. The nation's exports, after shrinking for 13 months, started growing again in December, and so far this year are up 31%.

Deng Jie, the owner of construction-material maker Beijing Oriental Horizon Technology Development Co., says he saw orders start to pick up from June when new construction starting growing nationwide. Since September, his mostly domestic sales have surpassed precrisis levels. "I invested over 2 million yuan in equipment and hired more employees last year," he says. "I think there's no problem for China to continue its current strong economic growth."

The snapback in demand has lifted producer prices in many parts of the world. In China, wholesale prices—the prices companies receive for their goods—rose 5.4% in February, while the price index for fuel, raw materials and power jumped 10.3%. Price increases raise prospects for tighter monetary policy around the globe, particularly in emerging economies.

While Europe's industrial recovery has been strengthening, the low levels from which output is rebounding are damping hopes that the sector could power an overall European economic recovery that lost momentum over the winter.

In the 16-nation euro zone, Europe's economic heartland, the purchasing managers' index for manufacturers rose to 56.6 in March, from 54.2 in February, reaching a level not seen since late 2006, according to figures released Thursday. Germany, which accounts for about 30% of euro-zone industry, led the way, with its individual index rising to 60.2 in March, from 57.2 in February.

Within Europe, German industry is benefiting disproportionately from the global manufacturing recovery thanks to its specialization in capital goods. Beumer Group, which makes material-handling and sorting machinery, is seeing "a much bigger improvement than we hoped at the beginning of the year," says sales director Thomas Borghoff.

New orders are coming from logistics sectors in Germany and the U.S., and from the chemicals and cement industries in Asia and Latin America. Beumer's work force has resumed working full shifts, and the company is looking to hire engineers again.