China March official PMI seen contracting for third month

BEIJING (Reuters) - Activity in China's factory sector likely contracted for a third straight month in March, a Reuters poll showed, reinforcing expectations that Beijing will have to step up policy easing to support economic growth that may be on the verge of dipping below 7 percent. The official manufacturing Purchasing Managers' Index, or PMI, is forecast to edge down to 49.7 from February's 49.9, according to the median forecast of 19 economists in the poll. A reading above 50 points indicate an expansion in activity while one below that shows a contraction on a monthly basis. January brought the first contraction in nearly 2-1/2 years, and if the March number is 49.7, it would be the lowest since August 2012. The flash HSBC/Markit PMI released last week showed factory activity unexpectedly dipped to a 11-month low in March as new orders shrank, pointing to persistent weakness in the world's second-largest economy. The official survey looks more at larger, state-owned firms, while the HSBC/Markit survey focuses on smaller firms. "The onset of March will typically result in a rebound in certainty after the Chinese Lunar New Year holidays, but leading indicators show no signs of such a rebound this time round," said Chester Liaw, an economist at Forecast Pte in Singapore. In a bid to support growth, reduce financing costs and stem outflows of capital, the central bank has delivered two interest rate cuts and a reduction in the amount of money banks must keep in reserve since November, but analysts believe more easing is needed. Monetary policy should be loosened given that first-quarter economic growth may dip below the government's new full-year target of 7 percent, the China Securities Journal on Monday quoted Chen Yulu, a central bank policy adviser, as saying. Central bank governor Zhou Xiaochuan warned on Sunday that the country needs to be vigilant for signs of deflation and said policymakers were closely watching slowing global economic growth and declining commodity prices. Weighed down by a property downturn, factory overcapacity and high levels of local debt, China's economic growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014. The PMI factory numbers will be released on Wednesday, April 1, alongside the official services PMI and the final HSBC/Markit PMI. (Writing by Kevin Yao; Editing by Kim Coghill)