China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, an official survey showed, raising expectations that policymakers will take more action to forestall a sharper slowdown.
The official Purchasing Managers' Index (PMI) fell to 49.8 in January, the National Bureau of Statistics said on Sunday, a low last seen in September 2012 and a whisker below the 50-point level that separates growth from contraction on a monthly basis.
The December level was 50.1, and a Reuters poll saw a better result, 50.2 for January. Only one of 11 economists in the poll predicted a January contraction.
Most of the PMI indexes "showed a downward trend, indicating that current economic growth is still in a downtrend," said Zhang Liqun, an economist at the Development Research Centre, a state think-tank.
Some economists said the January reading was especially downbeat as it suggested that factories did not enjoy a usual spike in business before China's annual Spring Festival holiday, which falls in mid-February this year.
The poor January official PMI fueled bets that more monetary policy loosening was in store in the world's second-largest economy.