HONG KONG - PRIVATE-sector business activity in Hong Kong contracted for a sixth month in December as new orders fell sharply amid weak global demand, prompting companies to cut jobs, a purchasing managers' survey showed on Friday.

The survey's main index rose slightly from a five-and-a-half year low in November but that was hardly cause for optimism. Its seasonally adjusted reading of 39.6 was the third lowest score in the PMI's 10-year history and well below 50, the dividing line between growth and contraction in business activity.

In November it fell to 38.8.

Companies did benefit from lower costs, which fell at the fastest rate in seven years. However, a plunge in new orders and output, as demand was hurt by the global economic downturn and financial crisis, prompted employers to cut staff for a second straight month.

Labour costs remained unchanged for the majority of survey respondents while tight competition and lower raw material costs pushed down output prices.

The survey points to a deepening economic malaise in Hong Kong, which tipped into recession in the third quarter as trade was hit by the global slowdown and turmoil in financial markets hurt consumer confidence.

Investment banks and other international companies have been laying off staff in the territory as part of global headcount cuts and analysts expect the economy to deteriorate further in the first quarter of next year as the slump in trade and finance has a knock-on effect on other sectors.

The PMI survey compares business conditions with a month earlier, based on data from Hong Kong companies across industries including manufacturing, services, retail and construction. -- REUTERS