China factory data show contraction; stocks fall

MarketWatch.com - MarketPulse LOS ANGELES (MarketWatch) -- China s manufacturing sector is showing an unexpected contraction in January, albeit a mild one, according to initial results from HSBC s monthly survey released Thursday. The flash version of the HSBC/Markit China manufacturing Purchasing Managers Index fell to a six-month low of 49.6, down from a final December reading of 50.5, with the result sending Chinese stocks and the Australian dollar all lower. Economists had expected the flash PMI -- which usually includes 85%-90% of total responses used for the final report -- to print at 50.3, according to a Bloomberg News forecast. Results below the 50 level indicate contraction, while those above 50 suggest growth. Among the subindexes, overall new orders swung to a decline, while new export orders -- already in contractionary territory -- showed a faster rate of losses. The closely watched employment subindex also fell at a faster rate than in December. HSBC chief China economist Hongbin Qu said the marginal contraction ... was mainly dragged by cooling domestic demand conditions. Qu said that since inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration seen in the second half of last year. Chinese stocks reacted negatively to the data set, as Hong Kong s Hang Seng Index traded with a 1.1% loss, compared to a 0.3% deficit moments ahead of the data, while the Shanghai Composite Index was down 0.3%, extending a 0.2% loss previously. The Australian dollar retreated to 88.08 U.S. cents, down from 88.37 U.S. cents before the results. China is a key export market for Australia, so the Australian currency often reacts to Chinese economic news.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.