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Mexican manufacturing contracts in June, slips to 20-month low

MEXICO CITY, July 1 (Reuters) - Activity in Mexico's manufacturing sector contracted in June compared with the previous month, a survey showed on Monday, suffering its weakest quarter since the series began in 2011 amid trade tensions with U.S. President Donald Trump.

The IHS Markit Mexico Manufacturing Purchasing Managers' Index fell to 49.2 in June from 50.0 in May.

The reading was the lowest since October 2017, and is likely to feed concerns that Mexico could be flirting with recession after the economy went backwards in the first quarter.

A figure above 50 signals expansion in the sector, while a reading below that threshold points to contraction.

"PMI data for June showed a worsening performance of the Mexican manufacturing sector, rounding off the weakest quarter since the survey started in April 2011," said IHS Markit economist Pollyanna De Lima, who wrote the report.

"Companies mostly linked the downturn to subdued client confidence, policy uncertainty, a lack of investment and trade tensions," she added.

Confidence in Mexico was rattled at the end of May when Trump threatened to impose tariffs on all Mexican imports to the United States if the government of President Andres Manuel Lopez Obrador did not curb illegal immigration from Central America.

A deal that temporarily averted tariffs was reached on June 7, but the shock came after the economy contracted by 0.2 percent quarter-on-quarter in the January-March period.

Mexico sends about 80 percent of its exports, much of which are goods like cars and televisions, to the United States.

In April, the economy grew by just 0.1 percent from the previous month and the central bank said on Thursday that downside risks to growth in Mexico had increased.

The only positive takeout from the latest Mexican figures was from the labor market, with employment stabilising following three consecutive months of reduction, De Lima said.

"However, with business sentiment fading to one of the lowest levels seen in the survey history and demand for goods failing to show any vigour, we may see renewed job shedding in the near-term," she added.

The PMI index is composed of five sub-indexes tracking changes in new orders, output, employment, suppliers' delivery times and stocks of raw materials. (Writing by Dave Graham; Editing by Chizu Nomiyama)