Wires

HSBC China services PMI recovers to 54.3 after one-year low

By Lucy Hornby

BEIJING, Oct 8 (Reuters) - China's services sector reboundedin September after its growth hit a one-year low in August,according to a private sector survey on Monday that follows lastweek's much more gloomy official assessment.

The HSBC services sector Purchasing Managers' Index rose to54.3 in September from 52.0 in August, rebounding to its highestlevel since May thanks to an uptick in the new businesssub-index to 54.0 - also the highest level in four months.

The sunny results are in marked contrast to an officialnon-manufacturing PMI released on Oct. 3, which showed activityin September slowing to the weakest level since November 2010.The official survey, published by the National Bureau ofStatistics, tends to reflect larger state-owned firms, and thetwo do not necessarily move in tandem.

Monday's survey also contrasts with both the HSBC and theofficial PMI ones of China's vast manufacturing sector, whichindicate that China is headed for a seventh straight quarter ofslowing growth.

"This is likely an indication of a gradual improvement ofdomestic economic conditions due to the earlier easing measuresand the stronger consumption demand in the run-up to the GoldenWeek holiday," said Hongbin Qu, HSBC's chief economist forChina.

"While this helped to cushion the ongoing slowdown ofmanufacturing sectors, a meaningful turnaround in domesticdemand requires additional easing efforts."

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC - Services PMIs: GRAPHIC-China PMI and output: GRAPHIC - Asian growth: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The week-long National Day holiday at the beginning ofOctober saw hundreds of millions of Chinese hit the roads andshopping malls, straining capacity at tourist destinations andcrowding trains and airports. This year, the holiday coincidedwith the Mid-Autumn Festival, when families and businesscontacts treat each other to restaurant meals, mooncakes andgifts.

HSBC's "prices charged" sub-index rose above 50 - the linethat separates expansion from contraction - for the first timesince March. The rise could reflect the holiday as well asreflecting an increase in inflation after a summer trough.

WEAK GROWTH

Analysts expect 2012 to be China's weakest full year ofgrowth since 1999 at just 7.7 percent, according a Reuters pollthat forecasts annual growth of 7.4 percent in Q3, down fromQ2's 7.6 percent.

Two cuts to interest rates, the easing of bank reserverequirements that freed about 1.2 trillion yuan ($190 billion)for lending and the approval of infrastructure projects worthmore than $150 billion have so far failed to arrest the declinein China's overall economic growth pace.

Analysts have had to repeatedly push back their expectationsfor when growth might begin to accelerate again. Beijing hasresolutely kept a grip on the vital real estate sector and -contrary to the hopes of some - has refused to launch a majorstimulus programme.

But there are signs that the real estate sector - the maindriver of wealth for China's prosperous city dwellers in thepast 15 years - is bottoming out, wrote analysts Stephen Greenand Lan Shen of Standard Chartered in a report before Monday'sPMI data was released.

They pointed to falling apartment inventories and greateractivity in land markets.

Local governments, which rely on land sales for revenue,moved to loosen curbs this summer but were slapped down byBeijing. The central government's stance could change after anew generation of leaders is appointed by the Communist Party inNovember, some analysts believe.

However, consumers may turn more cautious as the slowdown inthe manufacturing sector feeds through to the urban servicessector, as implied by the official non-manufacturing PMI resultsfor September, the Standard Chartered report noted.

The HSBC services PMI did reflect a slight reduction in thesub-index that tracks employment, although Markit Economics,which compiles the index, noted that employment grew at itssecond fastest pace in the past 10 months, thanks to the rise innew orders.

(Editing by Richard Borsuk)

((lucy.hornby@thomsonreuters.com)(+86 10 6627 1269)(ReutersMessaging: lucy.hornby.thomsonreuters.com@reuters.net))

Keywords: CHINA PMI/HSBC SERVICES