China Factory Activity Contracts For First Time In 7 Months, More Stimulus Seen

(Reuters) - Activity in China's factory sector contracted in December for the first time in seven months as new orders declined, a preliminary private survey showed on Tuesday, fueling expectations that more stimulus will be needed to avert a sharper economic slowdown.

The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 reading forecast by analysts.

A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis.

The gloomy report will reinforce investors' fears that the world's second-largest economy is losing momentum, and add to bets that more strong stimulus measures are on the cards after the central bank unexpectedly cut interest rates last month.

"The manufacturing slowdown continues in December and points to a weak ending for 2014," said Hongbin Qu, chief economist for China at HSBC.

"The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months."

Underscoring the pressures facing China's economy, the new orders sub-index fell to 49.6, the first contraction since April.

The level of output in factories also stayed below the 50 line for the second consecutive month in December, though it shrank at a slower rate compared to November's reading.

The PMI report followed data last week that showed further signs of economic fatigue, with factory growth and investment expansion slowing in November.

China's top leaders said last week that they will try to sustain reasonable growth in 2015 even though the economy faces "relatively big downward pressure."

The economy is expected to grow 7.4 percent this year, its slowest pace in nearly a quarter of a century, and cool further to 7.1 percent in 2015, according to a Reuters poll.

To re-energise activity and keep growth from slumping too sharply, the government has unveiled a series of stimulus measures since April, with mixed results.

The ailing property market, for example, is showing some tentative signs of possibly bottoming out, though it is expected to remain weak well into 2015, dragging on broader economic activity.