U.S. factory activity shrank in November for the first time in 3-1/2 years as new orders, production and employment fell and prices paid rose, according to a survey published on Friday, Reuters reports.

The data were seen as further evidence of slowing growth in the U.S. economy, which could force the Federal Reserve to cut interest rates in the first quarter of 2007.

The Institute for Supply Management said its index of national factory activity dropped to 49.5 from 51.2 in October, below economists' median forecast for a slight rise to 51.5.

This was the first time that the index had fallen below 50 since April 2003, when a reading of 46.5 was recorded. A reading below 50 indicates shrinkage in the factory sector.

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