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China September official PMI seen hitting 17-month high

BEIJING (Reuters) - China's factory activity is forecast to have expanded at its fastest rate in 17 months in September, a Reuters poll showed, reinforcing signs of a turnaround in the world's second-largest economy as both domestic and external demand improve.

The official manufacturing purchasing managers' index (PMI) is forecast to rise to 51.5 in September from August's 51, according to the median estimate of 14 economists. If realised, it would be the highest reading since April 2012.

A reading above 50 indicates expanding activity while one below it points to a contraction.

A preliminary private PMI survey by HSBC/Markit released this week showed the factory sector grew at its fastest pace in six months in September.

The official PMI, which is weighted more towards bigger and state-owned companies, generally paints a rosier picture than the private survey, which focuses more on smaller and private sector firms.

"With the help of a recovering global economy and government's pro-growth measures being effectively implemented, the rebounding trend in the manufacturing sector seen in August is expected to continue in September," said Nie Wen, an analyst at Hwabao Trust in Shanghai.

Beijing has stepped up efforts to prevent a sharp economic slowdown by quickening railway investment and public housing construction and introducing measures to help smaller companies.

Recent data has shown some of the impact of those policies, with factory output in August hitting a 17-month high and retail sales growing at their fastest pace this year.

Profits earned by industrial firms rose 24.2 percent in August from a year earlier, more than double the growth rate in July, data showed on Friday.

Grace Ng, senior China economist at J.P. Morgan in Hong Kong, also attributed the recovering momentum to lagging effects from strong credit growth earlier in the year and a more benign outlook for the global economy.

But economists caution about being too quick to cheer a recovery, pointing to signs that Beijing looks to be again relying on traditional growth drivers of investment and exports.

They also noted that after a surge in liquidity -- the total social financing aggregate nearly doubled to 1.57 trillion yuan ($256.5 billion) in August from July -- credit conditions could tighten again later this year.

"The stabilising economic performance in August suggested there might be little chance for maintaining loose liquidity conditions in the fourth quarter. Economic growth might slow again in November and December," said Nie from Hwabao Trust.

Premier Li Keqiang said earlier this month the economy was stable but there was a need to guard against risks.

The official PMI data will be released on Tuesday, October 1, at 0100 GMT. The final reading of the HSBC PMI is due on Monday at 0145 GMT.

FORECASTS

China Merchant Securities 50.9

China Securities 52.8

Citi 51.4

Guotai Junan Securities 51.0

Haitong Securities 51.2

Huarong Securities 51.3

Hwabao Trust 51.5

JPMorgan Chase 51.6

Nomura 51.7

Rising Securities 52.5

Shenyin & Wanguo 51.8

Societe Generale 51.4

Standard Chartered 51.7

Zheshang Securities 51.5

Median 51.5

Highest 52.8

Lowest 50.9

Prior 51.0

No. Of Forecasts 14

(Reporting By Xiaoyi Shao and Natalie Thomas; Editing by John Mair)

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