1st LD-Writethru: China's producer prices continue to fall

China's producer prices continue to fall in June, a sign of prolonged weakness of demand, data from the National Bureau of Statistics showed on Thursday.

The producer price index, a measure of costs for goods at the factory gate, fell 4.8 percent year on year in June, widening from the 4.6-percent drop seen a month earlier.

The reading also marked the 40th straight month of decline.

"This showed industrial demand is worsening, and China continues to face prominent deflationary risks," noted Qu Hongbin, chief China economist at HSBC.

Month on month, producer prices in June went down 0.4 percent.

Output prices of production materials fell 6.2 percent in June, contributing 4.7 percentage points of the PPI drop during the month, while those of consumer goods edged down 0.2 percent during the period.

The data came along with the release of the consumer price inflation index, which edged up to 1.4 percent in June, slightly above the market forecast of 1.3 percent and 1.2-percent rise in May.

Weighed down by a housing market downturn, weak domestic and external demand and overcapacity, China's economy grew at its lowest rate in six years in the first quarter, expanding 7 percent. The GDP data for the second quarter is due on July 15, which analysts predict will slip below 7 percent as the effects of China's pro-growth policies have yet to spread.

Given the still weak strength in growth, Qu forecast an interest rate cut and more reductions in bank reserve requirement ratio in the third quarter. Endi