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Economic data may offer more hope

KEY economic data for May, due to be released next week, may provide more evidence of China's recovery despite the mixed messages sent by the April figures, analysts said.

"We maintain our view that the Chinese economy has seen its cyclical bottom and should stage a gradual and steady recovery in the remainder of the year," said Wang Qing, a Morgan Stanley economist.

"Investors seem anxious for more good news in macro data to justify the recent rally in the equity market."

China's two bourses in Shanghai and Shenzhen have had strong performances this year. The benchmark Shanghai Composite Index rose above 2,700 points this month, up more than 50 percent from the end of last year.

Li Maoyu, an analyst at Changjiang Securities Co, said trade, the hardest hit sector in the global financial crisis, may have reached the bottom in April and will stage a narrower reduction in May. He expected exports would be down between 18 and 20 percent last month.

China's exports contracted 22.6 percent from a year earlier in April, widening from a cut of 17.1 percent in March.

"There are early signs of a recovery in the external demand shown by the just released China's Purchasing Managers Index," said Li.

China's official PMI reading, which measures manufacturing activities in the country, settled at 53.1 points in May, the third straight month to have a reading above 50 points, indicating an expansion.

Of particular importance, new export orders registered a reading of 50.1 points, the first time the orders had risen above 50 points since June last year.

China's domestic spending and investment may sustain their rapid expansion in May, given the effect of China's massive stimulus package and various measures to boost demand, analysts said.

But consumer prices and producer prices, two gauges of inflation, are likely to stay in negative territory.

"The Producer Price Index may probably suffer steepening year-on-year declines due to the base effect, although sequential declines have already been narrowing in recent months," said Wang Qing, of Morgan Stanley.

"The Consumer Price Index could stage a milder contraction and we believe that price indices will find a bottom in the coming months."

Wang said the PPI might decrease 7 percent in May on an annual basis, down from 6.6 percent in April while the CPI might retreat 1.4 percent in May, compared with 1.5 percent a month earlier.


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