By Fergal Smith

TORONTO Canada's manufacturing sector downturn deepened in September to its lowest level since shortly after the start of the COVID-19 pandemic as weak market demand weighed on production and new orders, data showed on Monday.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 47.5 in September, its lowest level since May 2020, from 48.0 in August.

A reading below 50 indicates contraction in the sector. The PMI has been below that threshold since May.

"In line with the global industrial downturn, the Canadian manufacturing sector continued to experience lacklustre performance during September," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Output and new orders both fell to steeper degrees amid evidence of slow market demand.

The output index fell to its lowest level since August 2022 at 45.6 from 47.7 in August. The new orders measure was at 46.9, also down from 47.7 in the previous month, while the employment index showed staffing levels declining for a fifth straight month.

"With job shedding again reported, these later developments add support to the Bank of Canada's recent decision to hold its main policy rate unchanged," Smith said.

The Canadian central bank held its key interest rate at 5% in September, noting the economy had entered a period of weaker growth.

Purchasing activity was cut as firms focused on reducing excess inventory at their plants. Signs that cost pressures were stabilizing provided some encouragement, with the input price index dipping to 50.4 from 53.9 in August.

(Reporting by Fergal Smith; Editin by Andrea Ricci)