* May data show stimulus may be helping, economy may be steadying
* But recovery patchy and cooling property market a major risk
* Property investment slows, sales slump, worst may be yet to come
* Analysts say more policy support needed to keep economy on track (Updates with analysts' quotes, details)
By Kevin Yao and Xiaoyi Shao
BEIJING, June 13 China's economy showed some signs of stabilising in May as the government unveiled more stimulus measures to avert a sharper slowdown, but signs of further deterioration in the property market indicate more policy support may still be needed.
As the property sector accounts for more than 15 percent of China's output, a prolonged or more precipitous decline will likely influence whether the world's second-largest economy risks a shallow or a deeper downturn, jeopardising Beijing's 7.5 percent growth target for the year.
Yet, leaders are reluctant to unveil massive aid like the 4 trillion yuan ($640 billion) stimulus implemented during the global crisis in 2008-09, which took local governments deep into debt. Instead, they have unveiled a series of more modest steps in recent months in hopes the economy will regain traction.
"The broader picture is that the property sector is still putting downwards pressure on the economy but this appears to have been largely offset by infrastructure spending and other targeted (stimulus) measures, which have shored up other areas of the economy," Julian Evans-Pritchard, China economist at Capital Economics, said in a note.
"We expect policymakers to stick with this targeted approach, at least for the time being. If property remains a drag on the rest of the economy ... more concerted efforts - including a broad cut to (banks') required reserve ratio - may be needed to support growth."
Steady growth in industrial production may signal that stimulus measures are offsetting the broader economic downdraft from the ailing property market, for now. And stronger consumer demand along with a modest export recovery may also be picking up part of the slack.
Factory output rose 8.8 percent in May from year earlier, in line with market expectations and improving slightly from 8.7 percent in April, data showed on Friday.
Retail sales, a key gauge of consumption, rose 12.5 percent, the fastest pace since December and beating market expectations.
Investment, however, continued to falter.
Fixed-asset investment grew 17.2 percent in the first five months of 2014 from a year earlier - the weakest since the government started a new statistics method in 2011 though slightly ahead of forecasts.
Real estate investment, which affects more than 40 other sectors from cement to furniture, rose 14.7 percent in January-May, down from 16.4 percent in the first four months.
Newly started property construction fell 18.6 percent in the first five months from a year earlier, the fourth consecutive period of decline.
Analysts predicted the worst is yet to come.
"The trend of slowing property investment growth is likely to continue in coming months as more and more home buyers stay on the sidelines," said Tang Jianwei, an economist at Bank of Communications in Shanghai.
MORE EASING ON THE CARDS?
A Reuters poll in April forecast China's economic growth could slow to 7.3 percent in the second quarter from a 18-month low of 7.4 percent in the previous quarter, with full-year growth of 7.3 percent in 2014, the weakest in 24 years.
Premier Li Keqiang has signaled some flexibility in achieving this year's 7.5 percent growth target, but analysts say the government needs to prevent growth from falling towards 7 percent that could fuel job losses and threaten social stability.
Stimulus measures unveiled so far include speeding up the construction of railway projects and public housing, as well as orders to local governments to fast-forward their fiscal spending, while the central bank has eased monetary conditions by guiding market rates lower and cut reserve requirements for certain banks to free up more money for lending.
Other data for May showed new bank lending and money supply rose faster than expected, while total fiscal spending by the central and local governments surged nearly 25 percent in May from a year earlier.
Some analysts expect the central bank to lower reserve requirements for banks across the country in coming months.
"We continue to expect further easing measures in the next few months to support our non-consensus view of GDP growth rebounding slightly to 7.5 percent in Q3 and 7.6 percent in Q4," said Zhiwei Zhang, China economist at Nomura in Hong Kong.
Nomura recently raised its second-quarter growth forecast to 7.4 percent from 7.1 percent, citing the boost from increased policy easing. (Additional reporting by Koh Qui Qing and Aileen Wang; Editing by Kim Coghill)