China's manufacturing activity slowed to a seven-month low in February, a private survey showed on Thursday, once again stirring concerns over the health of the world's second-largest economy.
The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to 48.3 from a final reading of 49.5 in January.
This is the second straight month the PMI has fallen below 50, which signals contraction.
"Economic activity has slowed in early 2014. Tighter credit in the fourth quarter of 2013 has made inventories more difficult to finance, prompting manufacturers to destock in February," said Bill Adams, senior international economist with financial services firm PNC.
The reaction in markets was swift; the Australia dollar fell half a U.S. cent to $0.8957, from $0.9004 before the data, while Aussie stocks turned negative. Australia is particularly sensitive to data from China, its top export market.
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Chinese stocks also pared gains, with the Shanghai Composite trading up 0.7 percent compared with its earlier rise of over 1 percent. Hong Kong's Hang Seng was down 1 percent.
A breakdown of the PMI showed new orders falling to 48.1 from 50.1 in January, and production dropping to 49.2 from 50.8. New export orders, however, rose to 49.3 from 48.4.
But getting the most attention is the employment sub-index, which Chinese policymakers are particularly attuned to. That came in at 46.9, its lowest reading since February 2009.
According to Zhiwei Zhang of Nomura, the figures back the bank's view that China will struggle to maintain its rebound.