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article imageGlobal factory growth stumbles as demand falters

    Mar 3, 2014 in Business

By Adam Rose

BEIJING (Reuters) - Manufacturing activity among Asia's major export economies stumbled in February, led by China where data suggested growth in the factory sector was stalling.

New export orders in China fell in February compared with January and growth in overseas demand for Japanese and South Korean goods eased, purchasing managers' reports said.

The data painted a gloomier picture compared with January when factories outside of China had shown signs of solid expansion.

The HSBC/Markit purchasing managers index (PMI) on China manufacturing fell to 48.5 in February, a seven-month low and the third straight monthly decline in the index.

A government PMI released on Saturday fell to 50.2, indicating the slowest growth in eight months. A PMI above 50 points to growth from the previous month, while one below 50 suggests contraction.

"Signs are becoming clear the risks to GDP growth are tilting to the downside," Hongbin Qu, chief economist for China at HSBC, said in a statement accompanying its PMI release.

An HSBC/Markit PMI on South Korea fell to 49.8 in February, marking the first contraction in the sector in five months. New export orders are growing, but at their weakest pace in five months.

Japanese manufacturers are still growing strongly off the back of aggressive economic stimulus policies promoted by Prime Minister Shinzo Abe. But a Markit/JMMA PMI released late last week pulled back from an eight-year high to 55.5, marking the first decline in the index in seven months.

New export orders showed demand was still expanding, but the index fell for the third straight month.

In India, whose economy is less reliant on exports, the PMI rose to 52.5 for its highest level in a year. Overall new orders were also rising at their strongest pace in a year, which HSBC economist Leif Eskesen said was partly a reaction to reduced economic uncertainty compared with last year. At that time, the currency fell to a record low against the dollar as investors worried about a gaping current account deficit.

Euro zone manufacturing PMI figures due later on Monday are expected to show steady growth in February from January.

Similar U.S. data - also due later on Monday - is forecast to show a sliver of improvement in growth in the manufacturing sector, although much focus will be on new order growth, which slumped in January -- the most in more than three decades.

CHINA

While Chinese manufacturers were struggling for growth, the services sector regained some momentum in February. China's official non-manufacturing PMI rose to a three-month high of 55.0.

"If the services PMI is to be believed, the service sector is not doing so bad, but ... the manufacturing, or the investment-heavy sector, not as well," said Wei Yao, China economist at Societe Generale in Hong Kong.

Although the PMI indexes are seasonally adjusted, some analysts cautioned against reading too much into the latest Chinese data, given the possible impact from the long Lunar New Year holiday, which began on January 31 and covered early February. Many businesses close for periods surrounding the holiday.

China's statistics bureau will release combined January-February figures for factory output, fixed-asset investment and retail sales later this month.

In recent weeks, China's economic indicators have been mixed. Weak investment and declining PMI readings have been countered by surprisingly buoyant exports and bank lending figures.

The annual parliament session, due to start on Wednesday, will provide the next marker for financial markets on the outlook for the world's second-biggest economy.

Premier Li Keqiang is widely expected to say that the government will maintain the 2013 economic growth target of 7.5 percent in 2014.

Although the pace of China's expansion has slowed down sharply from the breakneck double-digit pace of the last three decades, analysts at Bank of America Merrill Lynch said a 7.5 percent growth rate was achievable this year.

"We don't think policymakers will attach a big weight to the PMI readings in January and February," they said in a client note, arguing the government could stick with neutral fiscal and monetary policies for now. "We think the government has enough policy room to achieve 7.5 percent GDP growth this year."

(Additional reporting by Sarmista Sen in BANGALORE, Se Young Lee in SEOUL, Kevin Yao in BEIJING and Stanley White in TOKYO; Writing by Neil Fullick; Editing by Eric Meijer)

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