UPDATE 1-China Q2 growth better, more policy steps ahead - premier

Mon Jul 7, 2014 1:11am EDT

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BEIJING, July 7 (Reuters) - China's economic growth quickened in the second quarter from the previous three months, but further modest government support measures will still be needed, Premier Li Keqiang said on Monday.

Speaking at a news conference with German Chancellor Angela Merkel, who is visiting Beijing, Li said the Chinese economy still faces downward pressure and that the government will increase its usage of targeted measures to boost growth.

His cautiously optimistic remarks may boost market confidence ahead of China's second-quarter economic report due on July 16. Analysts polled by Reuters expects China's growth for the April-June period to have steadied at 7.4 percent.

"China's economic performance in the second quarter has improved from that in the first quarter. However, we cannot lower our guard against downward pressures," Li said.

"We will keep up our composure and not adopt strong stimulus. Instead, We will increase the strength of targeted measures," the premier said.

To lift China's flagging economic growth, which hit an 18-month low of 7.4 percent in the first quarter of 2014, authorities have cut taxes, ordered regional governments to speed up spending and reduced the amount of cash that some banks have to hold as reserves.

Use of these so-called "targeted measures" are meant to help areas of the economy with real business needs, and is a departure from the past when China would cut rates or reserve requirements for all banks and ramp up spending across the country.

But on the back of China's rapid credit growth in recent years, some experts - including the International Monetary Fund - have urged Chinese authorities to desist from dramatically loosening policy and focus on pursuing needed reforms.

A series of surveys of China's manufacturing and services sectors suggests that growth in the world's second-largest economy may have stabilised in recent months, though a cooling property sector is now shaping up to be the biggest threat.

Li said authorities will further fine-tune policies and expressed confidence the government's 2014 growth target of around 7.5 percent can be met.

But he added that authorities do not plan any massive stimulus programme. (Reporting by Megha Rajagopalan and Aileen Wang; Editing by Kim Coghill and Richard Borsuk)

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