China Sept Factory Activity Edges Up On Stronger Orders

　　Activity inChina's manufacturing sector unexpectedly picked up in September even asfactory employment slumped to a five and a half year low, a survey showed onTuesday.

　　The HSBC/MarkitFlash China Purchasing Managers' Index (PMI) rose to 50.5 in September fromAugust's final reading of 50.2.

　　Economists polledby Reuters had expected factory growth to stall at 50, the level whichseparates expansion in activity from contraction, citing a further deteriorationin business confidence and the rapidly cooling property market.

　　But a measure ofemployment shed more than a point to drop to 46.9, its lowest since February2009 during the global financial crisis.

　　A hefty drop inemployment could raise alarm bells for the Chinese government, which hasindicated it will tolerate slower economic growth as long as employment is notaffected.

　　"The pictureis mixed, with new orders and new export orders registering some improvement.Meanwhile, the employment index declined further and disinflationary pressureintensified," said Qu Hongbin, an economist at HSBC.

　　Finance MinisterLou Jiwei said at the weekend he would not dramatically alter policy because ofany one economic indicator, cooling any speculation of swift, aggressiveaction, but like many economists Qu said he continues to expect China willfurther relax its monetary policy over time.

　　Most Asian stockmarkets and the Australian dollar clawed back some of their early losses afterthe PMI report, while Shanghai stocks rose.

　　Despite a raft ofstimulus measures earlier this year, the world's second-largest economy hasstumbled as a slowdown in the housing market further undermined alreadysoftening domestic demand, while exports have faltered.

　　Worries thatChina was slipping into a deeper funk heightened this month when data showedfactory output grew at the weakest pace in nearly six years in August as growthin other key sectors also cooled.

　　China's urbanunemployment rate was nearly 4.1 percent at the end of June, though manyeconomists believe the real number may be much higher given its army of migrantworkers.

　　But theemployment index aside, other measures in the PMI poll fared better, whichcould keep Beijing's response more modest for now.

　　Total new ordersrose, and new export orders also climbed to their highest level since March2010.

　　The overalloutput level remained flat on the month, while output prices fell to asix-month low.

　　The finalHSBC/Markit manufacturing PMI for the month is due on Sept 30, while theofficial reading will be released on Oct 1. The HSBC surveys covers more smallto medium-sized companies, which are believed to be under far more stress thanlarger, State-owned firms which the official report tends to focus on.