By Xiaoyi Shao and Kevin Yao
BEIJING (Reuters) - China's new home prices fell in June from May for a second straight month and analysts forecast the falls would continue - sparking a surprise rally in Chinese property stocks as investors anticipated imminent government support.
Average new home prices in 70 major cities fell 0.5 percent in June from the previous month, accelerating from May's 0.2 percent monthly drop, according to Reuters calculations based on data issued by the National Bureau of Statistics on Friday.
Analysts expect the downturn could force local governments to implement extra measures to support the market and safeguard their revenues.
"This could be a turning point. The policy could be accommodative and lending to first time home buyers could be relaxed," said Wee Liat Lee, Hong Kong-based head of property research at BNP Paribas.
"We saw policy actions each time when the number of cities with price declines crossed the 50 mark in 2008, 2010 and 2011."
Chen Zhenggao, the newly-appointed housing minister, told a meeting that clearing some of China's massive housing inventory was a main goal for the second half of the year, the 21st Century Business Herald reported on Friday.
Chen said local governments could set policies to stabilize local property markets based on their own needs, suggesting local authorities will be given more flexibility to act.
Expectations that property controls imposed over the past five years to temper record prices may soon be loosened triggered a surge in Chinese property stocks.
The CSI300 real estate subindex climbed 3.5 percent, the biggest one-day rise in over three months.
PRICE FALLS SPREAD
The NBS data showed new home prices fell in June from May in 55 of 70 cities polled, up from 35 cities in May. The falling trend also spread to the country's wealthiest cities. Shanghai and the southern city of Guangzhou fell 0.6 percent from May, while Shenzhen dropped 0.4 percent.
The worst month-on-month performance was in the eastern city of Hangzhou, where prices fell 1.7 percent in June.
Existing-home prices also dropped month-on-month in 52 cities in June, compared with 35 in May.
Compared to a year ago, new home prices rose 4.2 percent in June, slipping from the previous month's 5.6 percent rise and the slowest annual growth in 15 months.
A mild cooling-off in the housing market will be welcomed by policymakers who have worked for nearly five years to curb property speculation.
Still, Beijing does not want to see the market crash and efforts have already been made to stop property prices from sliding any further.
Despite no outright easing of rules nationwide, policy tweaks by nearly 20 local governments in the past few months have made it easier to buy homes and banks have offered more credit to buyers.
A senior central bank official was quoted this week saying that Chinese banks increased their lending to the property sector by 18 percent in the first six months of 2014 compared with the year-ago period, in what he said was a "forceful" show of support.
"The sales momentum in terms of year-on-year growth will likely continue to improve, boosted by developers' more proactive promotion campaigns, together with the increasingly friendly policy environment and loosening liquidity in the broader economy," Alvin Wong, a property analyst at Barclays, wrote in a note to clients.
(Additional reporting By Umesh Desai in Hong Kong; Editing by Jason Subler and Eric Meijer)