RPT-HK May business contraction slowest since Sept -PMI

(Repeats)

HONG KONG, June 1 (Reuters) - Private business activity in Hong Kong stayed below growth levels for the 11th straight month in May, but the speed of contraction eased further as staff costs dropped sharply, a purchasing managers' survey showed on Monday.

Respondents widely commented that further falls in new business and an uncertain economic outlook were key factors that contributed to the latest decline, Markit Group Ltd, which compiles the monthly survey, said.

However, overall cost burdens faced by private companies also fell as job layoffs accelerated and staff costs marked their steepest drop since June 2003, the survey showed.

The Hong Kong purchasing managers' index (PMI) rose to a seasonally adjusted 44.77 in May from 44.34 in April. A reading above 50 indicates growth in activity, while a figure below 50 signals deterioration.

The PMI survey compares business conditions with a month earlier, based on data from Hong Kong companies across industries including manufacturing, services, retail and construction.

"Although still below the neutral 50, the headline Markit Hong Kong Purchasing Managers' Index rose for the sixth successive month in May, pointing to the slowest deterioration of business conditions in the Hong Kong private sector economy since last September," Markit Group said in its latest report.

May data signalled that private companies continued to reduce their workforce numbers in response to further reductions in business activity and new work, Markit said. "Staffing levels have now fallen in each of the past seven months."

Hong Kong's unemployment rate rose to 5.3 percent in the February-April period. Economists expect this number to reach close to 8 percent by the end of the year as the impact of a contracting economy is likely to have a six-month time lag.

Incoming new orders received by companies also fell for the 11th consecutive month, while output, although still below the neutral 50 threshold, rose for the sixth consecutive month.

New orders received from mainland China fell at a solid pace in May after posting a marginal increase in April.

"Anecdotal evidence linked lower sales to mainland China to an uncertain outlook for economic activity and subdued demand," Markit said in the report.

After slipping into recession in the third quarter of 2008, business sentiment in Hong Kong began to perk up on the back of signs of an improvement in the mainland's manufacturing sector in April, with China's economy receiving a boost from massive fiscal and monetary stimulus.

But the People's Bank of China warned last week that although the nation's economy has seen signs of improvement, it still faces considerable downward pressure as the global economic crisis continues to spread [ID:nPEK290986].

Prices charged by Hong Kong private sector firms dropped for the eighth month running in May, but the rate of decline eased to its weakest in four months, Markit said.

Of those firms that reported a reduction in pre-production inventories since April, the majority attributed the drop to reduced buying of inputs and policies aimed at utilising existing stocks in production.

(Reporting by Nerilyn Tenorio; Editing by Dhara Ranasinghe)