China March industrial profits fall 0.4 percent, down 2.7 percent in first-quarter

BEIJING (Reuters) - Profits earned by Chinese industrial firms fell 0.4 percent in March from a year earlier to 508.61 billion yuan (54.01 billion pounds), the National Bureau of Statistics said on Monday.

That compared with a 4.2 percent year-on-year fall in the first two months of the year.

For the first quarter of the year, profits declined 2.7 percent from a year earlier to 1.25 trillion yuan, the bureau said.

"Despite the narrowed decline in profits, the operational situation of industrial enterprises remained grave," He Ping, an official at the bureau said in a statement, adding that sluggish demand and falling product prices have pressured earnings.

The NBS attributed the narrower decline in profits last month to a deeper fall in raw material prices and lower financing costs cost after the central bank cut interest rates.

Prices of raw materials fell 5.7 percent from a year earlier in March, 0.2 percentage point more than in the first two months of this year, helping profit margins, the bureau said.

The producer prices index (PPI) contracted 4.6 percent in March from a year earlier, recent data showed.

PPI has now been in negative territory for three years, highlighting sustained pressure on profit margins at Chinese companies - in particular heavy industry - as the economy slows.

Financial costs of industrial enterprises were 6.59 billion yuan lower in March than a year earlier after China cut interest rates from March 1, compared with 2.74 billion yuan rise year-on-year in the first two months of this year, it said.

The central bank has cut rates twice since November.

Oil processing, coking coal and nuclear fuel processing industries saw a 10.75 billion yuan rise in profits in March from a year earlier, versus a drop of 28.55 billion yuan on year in January-February, partly due to the lagging effect of falling oil prices, it added.

The world's second-largest economy grew at its slowest pace in six years in the first quarter of 2015 and weakness in key sectors suggested the economy was still losing momentum into April, reinforcing expectations that Beijing will roll out more stimulus measures to prevent a sharper downturn.

China's stock markets have appeared oblivious to deteriorating earnings, surging some 80 percent since November on expectations that authorities will continue pumping more liquidity into the system. [.SS]

(Reporting by Judy Hua and Nick Heath; Editing by Kim Coghill)