UPDATE 2-China services sector booms in June, suggest economy steadying

Wed Jul 2, 2014 10:14pm EDT

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(Adds comments and details, official survey)

BEIJING, July 3 (Reuters) - Activity in China's services sector expanded at its fastest pace in 15 months in June, a private survey showed on Thursday, reinforcing signs that the broader economy is stabilising.

The services purchasing managers' index (PMI) compiled by HSBC/Markit rebounded to 53.1 in June from 50.7 in May, well above the 50-point level that demarcates expansion in activity from contraction.

"The expansion in the service sector reinforces the recovery seen in the manufacturing sector, and signalled a broad-based improvement over the month," said Qu Hongbin, chief economist for China at HSBC.

"We think the economy is slowly turning around, and expect the recovery to remain supported by accommodative policies on both the fiscal and monetary fronts over the coming months," he added.

In a sign that the domestic economy is regaining some internal strength, a sub-index measuring new business jumped to 53.8 in June, the strongest expansion since January 2013.

Government data on the services sector released earlier in the day also pointed to continued strong expansion, though the pace of growth dipped slightly to 55 for June from 55.5 in May.

The findings follow upbeat readings from similar factory activity surveys earlier in the week which offered signs that the world's second-largest economy is steadying as a flurry of government stimulus measures start to kick in.

Beijing has stepped up policy support in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter.

Such measures include targeted reserve requirement cuts for some banks, quicker fiscal disbursements and hastening construction of railways and public housing projects.

"We should especially note the evident rebound in services businesses related to manufacturing activities," Cai Jin, a vice president at the China Federation of Logistics and Purchasing -- which compiles the official PMI -- said in a statement on the agency's official microblog Weibo account.

"New orders from commodity retailers showed a big rebound, indicating that the stabilising growth momentum in the factory sector is filtering into the services industry."

Thursday's HSBC/Markit survey showed firms in the services sector were generally optimistic about the 12-month business outlook. A sub-index gauging their sentiment picked up slightly in June from May's 11-month low, though the reading remained weak in the context of historical data.

Stronger orders and the improving business outlook prompted services firms to hire more workers last month, as indicated by the employment sub-index, which rose to a three-month high.

Official data also showed companies remained confident, despite a slowdown in new order growth.

The services sector, which accounted for 45 percent of China's gross domestic product in 2012 and roughly half of all jobs in the country, is expected to post steady growth in coming years as the economy matures.

However, some economists warn the economic recovery still appears patchy, with a cooling property market, sluggish exports and high local government debt levels remaining as key risks. (Reporting by Aileen Wang and Koh Gui Qing; Editing by Kim Coghill)

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