UPDATE 1-Canada's Ivey PMI index stumbles in April

Fri May 4, 2012 11:22am EDT

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* PMI at 52.7 in April vs 63.5 in March

* Weaker than market expectation of 61

* Hits weakest level since July 2011

* Analysts question influence, track record of data

By Jennifer Kwan

TORONTO, May 4 (Reuters) - The pace of purchasing activity in the Canadian economy w eakened in April from March by more than expectations, suggesting the second quarter may have gotten off to a soggy start, according to Ive y Purchasing Managers Index data released on Friday.

The data showed the seasonally adjusted index fell to 52.7 in April from 63.5 in March. Analysts polled by Reuters had forecast a reading of 61. The unadjusted index slipped to 52.2 from 65 a month earlier.

Any reading above 50 on the PMI index indicates that activity increased from the preceding month. The latest seasonally adjusted number was still the weakest reading since July.

But analysts were divided on whether the one indictor points to broader weakness for April and the second quarter. A separate manufacturing PMI report released May 1 had showed the pace of growth in that sector advanced at its strongest rate of the year in April.

Mazen Issa, macro strategist at TD Securities, said despite the April slip he still expects growth to pick up following a sluggish start to the year.

"The rise in the inventory component speaks to the theme of ongoing build-up of inventories and will be growth positive," Issa said in a note.

Avery Shenfeld, chief economist at CIBC World Markets, characterized the reading as a "big drop in a typically not-too-useful purchasing managers report".

"The index isn't constructed like a typical PMI, in that it combines goods, services and government purchasers into a single measure, which is based only on whether their purchases were up or down relative to the prior month," said Shenfeld.

"We've seen similar dips in the past two years with no relationship to GDP."

Analysts have fretted about Canada's growth outlook after data showed the economy unexpectedly shrank in February, disappointing markets and cooling talk that the Bank of Canada could start raising interest rates in the near future.

The central bank warned last month that higher interest rates may be necessary to deal with a recovering economy and firmer underlying inflation.

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