BEIJING (REUTERS) - China's factory sector contracted by the most in 15 months in July as shrinking orders depressed output, a preliminary private survey showed on Friday, a worse-than-expected result that should reinforce bets the struggling Chinese economy will get more stimulus.
The flash Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) dropped to 48.2, the lowest reading since April last year and a fifth straight month below 50, the level which separates contraction from expansion.
Economists polled by Reuters had forecast a reading of 49.7, slightly stronger than June's final reading of 49.4.
Output in July was 47.3, its lowest since March 2014. New orders and new export orders, which expanded in June, fell this month, according to the survey.
The poor PMI survey contrasted with recent data that suggested the world's second-largest economy was stabilizing after the government said annual growth in April-June held steady at 7 per cent, slightly better than market expectations.
Continuing contraction in factory growth is likely to fuel speculation that China will further loosen monetary policy to try to stoke activity.
Economists polled by Reuters this month said they expect China to reduce interest rates by 25 basis points before the year-end. The amount of cash that Chinese banks must hold as reserves was also expected to be reduced to keep the Chinese economy growing at 7 per cent this year, the slowest pace in a quarter of a century.
Additional policy support would make it the most aggressive easing cycle overseen by the central bank since the height of the 2008/09 global financial crisis.
"The central bank will maintain its loose monetary policy in the second half this year, and it will continue to apply different methods to control liquidity," Zhu Haibin, economist at JP Morgan in Beijing, said on Wednesday.
China's Caixin Media Co Ltd is publishing the PMI for the first time this month after replacing HSBC as the sponsor of the survey.