There are growing signs of a sustainable recovery in the technology sector, driven by Chinese demand and the launch of new netbook computers and Windows software, but the recovery must be backed by a broader economic revival, industry experts said Wednesday.

Shares in the sector soared across the world after chip maker Intel Inc. (INTC), PC maker Acer Inc. (2353.TW) and ASML Holding NV (ASML.AE), which makes the machines that produce chips, all said demand in the sector was rising after a year of decline. The Stoxx Europe 600 technology index ended 1.7% higher, and broader equities markets also soared as investors' appetite for risk rose to the highest level in three years, according to a survey of fund managers conducted by Bank of America Merrill Lynch.

However, ASML Chief Financial Officer Peter Wennink warned that demand may not be sustained into the second half of next year unless there is a broader economic recovery.

Citing ASML's order backlog, Wennink said the first half of 2010 will look good. "What we need for the second half to be as good is for the world economy to pick up," he said.

Economists say the risk of a slight recovery followed by another contraction seems to be receding, but with incomes flat, unemployment rising and credit still tight, any recovery is likely to be a slow, drawn-out affair.

Still, Intel reported third-quarter results that were well above the upbeat projections it issued several weeks ago and predicted business conditions will improve even more in the current quarter, with its closely watched gross profit margin expected to rise to the highest level since late 2005.

Intel executives said they saw signs of strong buying of laptop PCs, led by back-to-school purchases in the U.S. and demand from consumers in China.

European rivals such as ARM Holdings (ARM.LN) of the U.K. and France's STMicroelectronics (STM) saw their shares rise sharply on the Intel outlook, but they declined to comment on their own prospects ahead of earnings releases in the next few weeks.

The Intel view was backed by ASML, which produces the lithography machines that make chips for Intel and rivals including Samsung Electronics Co. Ltd. (005930.SE) and Taiwan Semiconductor Manufacturing Co.(TSM).

Reporting its first net profit for a year, the world's largest maker of lithography systems - which map out tiny electronic circuits on silicon wafers - said it was confident about the first half of next year because of its EUR1.35 billion order backlog. About 77% of the backlog is for memory chip makers and contractors that produce chips on behalf of other companies. These chips are used in PCs, cameras, MP3 players and smartphones, and increasingly in laptops and the lighter netbooks.

Taiwan-based PC maker Acer, meanwhile, said it expects revenue to be steady this year as demand from China and elsewhere in Asia offsets declines in other markets. It is also predicting it will overtake Dell Inc. (Dell) as the world's second-biggest personal computer maker by shipments some time in the next two quarters.

"The life cycle of products is getting shorter, with people quicker to change [PCs] than before," said Acer President Gianfranco Lanci.

"People have been underestimating demand for a long time," said Unni Narayanan, chief executive of Primary Global Research. Among other things, he said, PC makers are placing orders on the expectation that Microsoft Corp.'s (MSFT) Windows 7 operating system - to be released Oct. 22 - will prompt extra demand.

"In the semiconductor industry the capacity utilization rate is high, and more capacity could be needed shortly," said Commerzbank analyst Thomas Becker. Unicredit's Guenther Hollfelder said relatively low chip inventory levels limit the risk of a setback.

However, while there a lot of consumer electronic products in the pipeline, "they have to be bought by consumers," said Becker.

-By Archibald Preuschat, Dow Jones Newswires; +49 211 13872 18; archibald.preuschat@dowjones.com