August 1, 2014 / 1:56 AM / 3 years ago

China final HSBC PMI at 18-month peak in July, adds to signs of recovery

BEIJING (Reuters) - China's factory sector posted its strongest growth in 18 months in July as new orders surged to multi-month highs, a private survey showed on Friday, adding to signs the economy is regaining momentum helped by a spate of stimulus measures.

The HSBC/Markit China manufacturing Purchasing Managers' Index (PMI) climbed to 51.7 last month, up from June's 50.7 but slightly below a preliminary reading of 52.

A reading above 50 indicates an expansion in activity on a monthly basis, and below that a contraction.

Still, July's reading is the best outcome since January 2013.

Sub-indices for new orders and new export orders both registered hefty gains. The new orders sub-index jumped nearly two points to 53.3, a level last seen in March 2013.

Growth in new export orders accelerated at the second-fastest pace in 44 months, HSBC/Markit said.

Output levels also hit a 16-month peak to be well above 50 as companies increased production in response to the upturn in new business.

With Chinese authorities still easing policy through measures such as increasing bank lending and relaxing controls on the property market, HSBC economist Qu Hongbin said the economy has room to run.

"We expect the cumulative impact of these measures to filter through in the next few months and help consolidate the recovery,” he said.

But in a sign that the recovery may still be patchy, a sub-index for employment in the PMI survey showed employment contracted for the ninth consecutive month as some companies laid off workers.

China's economy has had a rocky spell this year.

Growth cooled to an 18-month low of 7.4 percent in the first quarter, and it was only after a flurry of policy support from April that activity edged back up to 7.5 percent in the second quarter, in line with the government's 2014 GDP expansion target.

And what started as a slowdown largely driven by unsteady foreign and domestic demand and investment has broadened to include a housing downturn, which in recent months has become the biggest threat to the economy.

Average home prices fell in May for the first time in two years, while growth in land prices also slowed for the first time in two years in the second quarter.

Although a retreat in the once-heated housing market is a welcome for Chinese since home prices are still near record highs, the cooldown is painful for policymakers since the sector accounts for roughly 15 percent of China's economic growth.

Reporting by Koh Gui Qing; Editing by Kim Coghill

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