China's June Services Sector Growth at Nine-Month Low - Survey

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Growth in China's services sector sagged to its weakest pace in nine months in June as construction activity slowed, a survey showed on Wednesday, a sign that an economic cool-down is creeping across the country.

The National Bureau of Statistics (NBS) said China's official purchasing managers' index (PMI) for its services sector dropped to 53.9 in June from May's 54.3. A PMI reading above 50 suggests firms are growing, while that below 50 indicates contraction.

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Wednesday's PMI report comes after two separate PMI surveys showed China's manufacturing growth plumbed multi-month lows in June as foreign and domestic demand waned.

"The slight drop in the services sector was mainly caused by a seasonal fall in the construction industry," said Cai Jin, a vice president at the China Federation of Logistics and Purchasing (CFLP), in a statement accompanying the data.

The CFLP conducts the official survey together with the NBS. The sub-index for construction fell to 59.3 from 62.2 in May.

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An industry of growing importance, China's services sector accounted for nearly half of its economy last year, and overtook factories as the biggest employer in the country in 2011.

Unlike Chinese factories which are hurting from slackening foreign and domestic demand, as well as excess capacity, China's services firms are only exposed to weaknesses at home and are generally faring better than manufacturers.

But China's economic downturn, shaping up to be the worst in at least 14 years, is starting to bite. Many analysts believe the economy is backsliding into another downturn after a short-lived recovery lasting only around three months, with growth possibly even missing Beijing's 7.5 percent target this year.

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An increasing show of reluctance by top Chinese leaders to take policy steps to stimulate growth has also raised the chance that China's economic downcycle may turn out worse than thought.

Indeed, an unprecedented cash crunch in China's financial markets last month, that saw interest rates briefly spike to record highs, may further drag on the economy in coming months.

A separate survey of China's services sector published by HSBC is due on Wednesday at 0145 GMT.