China's manufacturing activity contracted for a third straight month in January as the world's second largest economy slows, boosting the case for further monetary easing, HSBC said Friday.
The preliminary HSBC purchasing managers' index (PMI) stood at 48.8 in January, up marginally from 48.7 in December, the British banking giant said in a statement.
A reading above 50 indicates expansion while a reading below 50 suggests a contraction. Final results will be released on January 31.
"The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further," Qu Hongbin, HSBC chief economist for China, said in the statement.
"We expect more policy easing to stabilise growth," he said.
The country's manufacturing activity contracted in November for the first time in 33 months, according to separate figures from the China Federation of Logistics and Purchasing (CFLP).
The economy expanded 9.2 per cent last year, slowing from 10.4 per cent in 2010, figures released this week showed, as global turbulence and efforts to tame high inflation put the brakes on growth.
Gross domestic product grew 8.9 per cent in the fourth quarter alone, the National Bureau of Statistics said, slower than in the third quarter.
In a bid to boost growth and counter turmoil in the key export markets of Europe and the United States, China in December cut the amount of money banks must hold in reserve for the first time in three years.
Zhang Xinfa, a senior economic analyst at Galaxy Securities in Beijing, told AFP: "The preliminary data shows the trend of a rebound in China's manufacturing activity, though it is not strong.
"However, demand -- especially domestic demand -- is not strong enough to reduce inventories and it is still affected by the overall economic environment," he added.
New manufacturing orders also contracted in December from November, but new export orders expanded, HSBC said. It gave no figures.
"The ongoing slowdown of investment and exports implies more headwinds to growth and likely destocking pressures for manufacturers in the coming months," said Qu of HSBC.
China's exports rose 20.3 per cent to $1.899 trillion in 2011, slowing from an increase of 31.3 per cent in 2010.
The measure of PMI by HSBC has differed from official figures, which showed China's manufacturing unexpectedly rebounded in December on holiday shopping.
The CFLP said its PMI gauge reached 50.3 last month, indicating an expansion.
Chinese stocks were higher after the PMI announcement, as investors still believe that the economic slowdown is moderate and China will not suffer a "hard landing" of its economy, dealers said.
The benchmark Shanghai index was up 0.37 per cent at midday.