* China June factory activity quickens
* New orders surge but new export orders soften
* Adds to new signs of stabilisation in economy
* Recovery may still be tentative, however
* Property sector cooldown, export weakness eyed
(Recasts and adds more comment)
BEIJING, June 23 Activity in China's factory
sector expanded in June for the first time in six months as new
orders surged, a preliminary HSBC survey showed on Monday,
offering new signs the economy is stabilising thanks to
Beijing's measures to shore up growth.
Still, many analysts expect the government may need to roll
out further steps in coming months to offset the risks from a
cooling housing market and persistent export weakness, after
China's premier vowed last week that the economy would not
suffer a hard landing.
The HSBC/Markit Flash China Manufacturing Purchasing
Managers' Index rose more than expected to 50.8 in June from
May's final reading of 49.4, beating a Reuters poll forecast of
49.7 and creeping above the 50-point level that separates growth
in activity from contraction.
It was the first time since December that the PMI was in
growth territory, and the highest reading since November, when
it was also 50.8.
The upbeat report reinforced market expectations that the
world's second-largest economy is powering through its recent
soft patch, even if the recovery may be patchy.
"This month's improvement is consistent with data suggesting
that the authorities' mini-stimulus is filtering through to the
real economy," said Qu Hongbin, chief economist for China at
HSBC, referring to a series of measures announced by the
government in recent months to spur activity.
"We expect policymakers to continue their current path of
accommodative policy stance until the recovery is sustained," he
The preliminary factory reading for June indicates
sequential growth could pick up to 1.8 percent in the second
quarter from 1.4 percent in the first, Ting Lu, an economist at
Bank of America-Merrill Lynch, said in a note to clients.
"We expect Beijing to continue rolling out more measures to
stabilize growth," Lu added.
The sub-index for new orders, a proxy to measure domestic
and foreign demand, rose to 51.8, the fastest pace in 15 months.
Much of the increase appeared due to stronger domestic
consumption, as growth in new export orders slowed sharply.
Still, the survey showed an across-the-board improvement in
the vast factory sector, with most of the 11 sub-indices,
ranging from output to new orders and stocks of purchases,
accelerating from previous months.
The flash PMI data is the earliest indicator in a month to
help gauge the economic momentum and thus is closely watched by
Asian stock markets and the Australian dollar firmed on the
Beijing has unveiled a series of modest policy measures in
recent months to give a lift to economic growth, which dipped to
an 18-month low in the first quarter.
Such measures include targeted reserve requirement cuts for
some banks to encourage more lending, quicker fiscal spending
and hastening construction of railways and public housing
But the recovery has been patchy, and a strong rebound is
seen as unlikely.
Exports remain uneven as recoveries in the United States and
the European Union do not appear to be giving their usual robust
boost to export-reliant Asian economies.
Investment growth also continues to falter, in particular in
the real estate sector. Average new home prices in China fell
for the first time in two years in May, while new construction
slumped by nearly a fifth, adding to the drag on the economy.
Moreover, the preliminary PMI survey's sub-index for
employment pointed to jobs still being shed, though the pace of
contraction eased from May.
China has set an annual target for the economy to grow about
7.5 percent in 2014 and a recent Reuters poll found that
economists expected growth of 7.3 percent for this year, which
could be the weakest showing in 24 years.
Chinese leaders have ruled out the possibility of any
massive stimulus to pump prim the economy as they tolerate a
slower growth rate while pushing ahead with structural reforms.
Premier Li Keqiang said last week that China's economy would
continue to grow at a medium to high pace in the long term
without strong stimulus.
With no big stimulus seen in the offing, economists expected
Beijing to launch incremental fine-tuning steps, especially in
the property sector, to encourage steadier economic growth.
"Besides quicker roll-out of 'already in the pipe line
measures' and greater fiscal support, the government may have to
offer more explicit housing demand support," Tao Wang, an
economist at UBS, said in a note to clients.
(Reporting by Aileen Wang; Editing by Kim Coghill)