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China factory growth stalls, at six month low - HSBC flash PMI

An employee works at the production line of an automobile factory in Dalian, Liaoning province, October 18, 2014. . REUTERS/Stringer

BEIJING (Reuters) - Growth in China's vast factory sector stalled in November, with output contracting for the first time in six months, a private survey showed on Thursday, adding to signs that the economy may still be losing traction.

The reading is the latest in a string of weak figures in recent weeks, strengthening the case for more stimulus to avert a sharper slowdown in the world's second-largest economy.

Hurt by a cooling property sector, erratic foreign demand and slackening domestic investment growth, China's economy is seen posting its weakest annual growth in 24 years this year at 7.4 percent.

The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to a six-month low of 50.0 from a final reading of 50.4 in October and well below the 50.3 forecast by analysts.

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

"We are still expecting 7.1 percent growth for the fourth quarter," said Shen Minggao, an economist at Citi.

"The economy is still under downward pressure and we expect three rate cuts from now until the middle of next year," said Shen, who expected interest rates to be cut by 25 basis points each time.

To re-energise the economy, the government has rolled out a steady stream of stimulus since April that has put a floor beneath flagging growth. The ailing property market, for example, is showing some tentative signs of possibly bottoming out, though it may remain weak well into 2015.

But with large sections of the economy still listless, many analysts expect more policy support in coming months.

Some expect authorities to quietly increase money supply by giving banks more discounted loans, while others including economists at state think-tanks believe the government could act more aggressively by cutting rates before the year-end.

"Disinflationary pressures remain strong and the labour market showed further signs of weakening," said Hongbin Qu, chief China economist at HSBC.

"We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed.”

Thursday's PMI showed overall new orders picked up slightly but new export orders slowed markedly, dragging on activity. The factory output sub-index fell to 49.5, the first contraction since May.

Employment also shrank slightly last month, with a sub-index for jobs falling to 48.4 from October's 48.9. Senior Chinese leaders including Premier Li Keqiang have said that keeping the labour market healthy is a crucial policy priority.

In a sign that activity could stay sluggish next year, the country's top economic planner said on Wednesday that the economy faces increasing downward pressure in 2015, while the cabinet promised to help lower funding costs by giving banks more flexibility to lend.

(Reporting By Jake Spring and Koh Gui Qing; Editing by Kim Coghill)