Chinese manufacturing growth slows in Dec -surveys

BEIJING, Jan 2 (Reuters) Two surveys released this week show that China's manufacturing sector posted modestly slower growth in December, although the key sector of the world's fourth-biggest economy was still expanding.

Brokerage house CLSA's Purchasing Managers' Index (PMI) fell to 52.4 in December from 53.0 in November, while an index based on an official survey slipped to 54.8 from 55.3.

The indexes are designed to give a timely snapshot of business conditions in the manufacturing sector. A reading above 50 indicates expansion, while one below 50 shows contraction.

The official survey has been in positive territory above 50 for two years running; CLSA's index remained above the boom-bust line of 50 for the 13th straight month.

''Overall, the two separate PMI series seem to suggest that the near-term momentum in China's industrial activities would likely hold steady, but not necessarily decelerate further,'' Qian Wang, an economist with JPMorgan in Hong Kong, said in a note to clients.

A slight slowdown in the output and new orders components of both indexes in December suggested that a recent moderation in investment demand would weigh on manufacturing going forward, she said.

New export orders fell to 55 from 57.1 in the official survey, while they rose back above the 50 mark following a contraction in November, according to CLSA's reading.

Jim Walker, chief economist at CLSA, said that although new export orders had rebounded in December, they were likely to fall as the U.S. economy suffered a sharp slowdown and act as a drag on overall orders growth.

Although the easing in the CLSA index should help lower concerns about a re-acceleration in the economy, Beijing was leaning towards taking further tightening steps in 2007, Walker said.

Last year, China twice hoisted interest rates and raised the amount of funds which lenders must hold in reserve three times as part of a long-running campaign to curb an investment-fuelled liquidity boom.

A recent moderation in investment growth has offered some evidence that such measures have had some success, but many economists expect the government to raise interest rates further and to take other tightening measures this year.

Walker said Beijing would also keep close tabs on inflation pressures after CLSA's sub-index on input prices hit 60.3 and the output price index climbed to 54.9, its highest reading since July.

''Chinese inflation pressures are bubbling just below the surface. Difficult policy choices lie ahead for Beijing in the new year,'' he said.

Annual consumer price inflation remained under two percent in 2006, but rose to 1.9 percent in November from 1.4 percent in October in part due to quickly rising grain prices.

REUTERS DKS HS1125