1st LD-Writethru: China stocks slip on weak factory activity

Chinese shares extended losses on Monday as market sentiment was dampened by new official data showing contraction in the country's manufacturing sector.

The benchmark Shanghai Composite Index lost 0.87 percent to close at 2,953.39 points, nearing a one-month low.

The smaller Shenzhen index shed 1.39 percent to hit 10,185.48 points. The ChiNext Index, tracking China's NASDAQ-style board of growth enterprises, was down 1.09 percent, closing at 2,099.18 points.

Combined turnover on the Shanghai and Shenzhen bourses dropped mildly to 417.5 billion yuan (62.78 billion U.S. dollars).

China's factory activity posted a slight drop in July due to the flood season and weak demand. The purchasing managers' index came in at 49.9, slightly lower than June's 50, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

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

Investors remained cautious after regulators vowed to crack down on speculative trading and curb capital flowing from bank wealth management products to the stock market.

A statement released after a high-level central meeting last week said China will impede the growth of asset bubbles in the rest of the year, which was interpreted by analysts as a signal for stricter regulation.

Shares of liquor producers and plane manufacturers led the declines.

Bucking the trend, steel mills rallied, encouraged by media reports that China will propel industry consolidation to create two steel giants that can face global rivals. However, the reports have yet to be confirmed by authorities.

Beijing Shougang Company gained 2.22 percent to finish at 4.15 yuan, and Hesteel Company climbed 1.4 percent to close at 2.9 yuan. Endi