China's February HSBC services index edges up as orders improve

BEIJING (Reuters) - Activity in China's services sector grew modestly in February as new orders rose at their quickest pace in three months, a private survey showed just a few days after the central bank cut interest rates to stimulate the world's second-largest economy.

The HSBC/Markit Services Purchasing Managers' Index(PMI) picked up to 52.0 last month from January's 51.8 and remained above the 50-point level that separates contraction from growth in activity on a monthly basis.

A sub-index for new orders rose to 52.2 in February from 51.2 in January and the sub-index measuring new business also rose.

"The solid rise in new orders suggests that activity growth may pick up in the months ahead, as firms continued to add to their payroll numbers amid a positive business outlook," said Annabel Fiddes, Economist at Markit.

Official surveys showed on Sunday that growth in the services sector picked up to 53.9 last month from January's 53.7, which the National Bureau of Statistics attributed in part to strong holiday spending during the Chinese New Year.

Accounting for 48 per cent of China's US$10.2 trillion economy last year, the services sector has weathered the growth downturn better than factories have, partly because it depends less on foreign demand.

China's economic growth slowed to 7.4 per cent in 2014 - the weakest in 24 years, from 7.7 per cent in 2013, even as the job-creating services sector outperformed the factory sector.

A further slowdown to around 7 per cent is expected this year, even allowing for additional stimulus measures, as a cooling property market, excess manufacturing capacity and slowing investment weigh on activity.

Chinese leaders will announce a 2015 growth target at the opening of the annual session of China's legislature this week.

Late on Saturday, the People's Bank of China (PBOC) cut interest rates, its third major easing since late November, as regulators show signs of intensifying concern over lacklustre data since the fourth quarter and growing deflationary pressures.

The PBOC had already cut interest rates in November and reduced the reserve requirement (RRR) - the ratio of cash that banks must set aside as reserves - earlier in February, the first such reduction in over two years.

Economists expect more reductions in interest rates and RRR over the coming quarters.

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