2nd LD-Writethru-China Focus: China's manufacturing PMI rebounds in February

Chinese manufacturing business activity rebounded slightly in February but remained in contracted territory after falling to a 28-month low in January, official data showed on Sunday.

The manufacturing purchasing managers' index (PMI), a key measure of factory activity in China, posted 49.9 in February, up from 49.8 the previous month, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP).

A reading above 50 indicates expansion, while a reading below 50 represents contraction.

The index last month ended a losing streak that had lasted for four consecutive months since October and showed China's manufacturing contraction has narrowed.

The PMI dropped below the 50-point mark in January, the first time since October 2012, marking looming downward pressure on the economy.

The marginal improvement was attributable to rising market demand and confidence boosted by recent pro-growth policies, such as a reserve ratio cut and tax breaks, and steady global commodity prices, said Zhao Qinghe, a senior NBS statistician.

The subindex of new order rose to 50.4 in February from 50.2 in a month earlier, while the subindex for raw material inventories climbed from 47.3 to 48.2.

But sub-indices for production, employment and delivery time dropped month on month to 51.4, 47.8 and 49.9 respectively.

"Although the PMI was slightly below 50, the production and demand continued to expand," Zhao said. He forecast the manufacturing market will see a dynamic trend soon as factories have started to resume operation after the holiday.

However, Cai Jin, vice president of the CFLP, said uncertainties existed despite encouraging signs.

China's non-manufacturing PMI, which tracks the business activities of service and construction sectors, recovered to 53.9 in February from 53.7 in January.

MORE EASING?

Despite rebounding factory activity data, economists said downward pressure on the world's second largest economy had not decreased and further policy easing measures would be still needed to support slowing economic growth.

China's manufacturing PMI usually retreats when a new year begins due to the Spring Festival holiday, but the latest figures showed an anti-seasonal rebound boosted by surging consumption. This reflects the same trend showed earlier by the HSBC flash PMI, which improved slightly to a four month high of 50.1.

Steven Zhang, vice president of Morgan Stanley Huaxin Securities, said he was far from optimistic about the economic situation despite the mild PMI improvement.

The holiday affected recovery was too slight to prove an overall economic pick up with more evidence from other indicators needed and the latest rate cut by the central bank also showed concerns from policy makers on the continued slowdown, Zhang said.

The People's Bank of China slashed benchmark deposit and loan interest rates by 25 basis points on Saturday, the second such cut in three months amid high market expectation.

HSBC chief China economist Qu Hongbin said the economy would likely remain sluggish confronted with external uncertainties even with the improvements in manufacturing, forecasting more easing measures to prevent further slowdown.

Sharing this view, both Zhang and Chu Jianfang, chief economist of CITIC Securities, said they expected to see more monetary easing measures to prop up the economy given the current economic climate.

China's economy grew 7.4 percent in 2014, the weakest annual expansion in 24 years, and a string of economic indicators for the new year, including manufacturing and trade data, all suggested continued weakness. Endi