China factory activity shrinks in December, first contraction in 7 months

BEIJING (Reuters) - Activity in China's factory sector shrank in December for the first time in seven months as new orders declined, a preliminary private survey showed on Tuesday, adding to expectations that more stimulus may be needed to avert a sharper economic slowdown.

The flash HSBC/Markit manufacturing purchasing managers'index (PMI) fell to 49.5 in December from November's final reading of 50.0 and well below the 50.0 reading forecast by analysts.

A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis.

Underscoring the pressures facing China's economy, the new orders sub-index fell to 49.6, the first contraction since April.

The level of output in factories also stayed below the 50 line for the second consecutive month.

The PMI report followed data last week that showed further signs of fatigue in the world's second-largest economy, with factory growth and investment expansion slowing in November.

After insisting for months that stronger stimulus wasn't needed, Beijing unexpectedly cut interest rates on Nov. 21 to shore up the cooling economy and ease pressure on debt-laden companies. Many analysts see further easing in coming months.