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China's factory activity contracts for second straight month in Dec.

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BEIJING, Dec. 30 (Xinhua) -- China's manufacturing activity shrank again in December with modest deterioration due to weakening external demand and a continued tightening of the property market at home, according to a purchasing managers' survey released by HSBC on Friday.

After adjusting for seasonal variation, the HSBC Purchasing Managers' Index (PMI), a gauge of operating conditions in the manufacturing sector, rebounded slightly to 48.7 in December from 47.7 in November.

Still, the reading has fallen below the boom-or-bust line of 50 for two consecutive months since November, signalling a modest deterioration in business conditions. Moreover, the index averaged its lowest quarterly reading since the first quarter of 2009, said an HSBC press release.

The rate of decline was only marginal, however, and notably slower than in the preceding month, according to HSBC.

A reading above 50 denotes growth, while a reading below 50 suggests contraction.

Companies reported rising inventories of finished goods for the first time in 17 months in response to weaker-than-expected sales volumes, as incoming new business fell at a faster rate relative to production, according to the HSBC survey.

Staff numbers and outstanding business volumes both fell marginally. On the price front, input prices decreased markedly, with companies responding by reducing output charges.

Moreover, new export business also fell during December, ending a two-month period of growth. Survey participants that recorded a drop in foreign order levels commonly linked this to sluggish demand from external clients.

Hongbin Qu, chief economist of China and co-head of Asian economic research at HSBC, said a stabilizing slowdown, weakening external demand and the ongoing property market tightening added to calls for China to take more aggressive action on both fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly.

"Hard landings should be avoided so long as easing measures filter through in the coming months," Qu said.

The HSBC PMI figure is calculated based on 85 percent to 90 percent of total responses to HSBC's PMI survey each month.

The National Bureau of Statistics and the China Federation of Logistics and Purchasing are expected to release the official PMI data for December on Jan. 1 next year. The official PMI is based on a survey of purchasing managers in more than 820 companies in 20 industries.

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