China April HSBC services PMI hits 2015 high of 52.9

A stock market rally helped boost consumer confidence and spending

China's services sector grew at its fastest pace this year in April as a sizzling stock market rally helped boost consumer confidence and spending, a private survey showed on Wednesday.

Yet in a sign that China's economy still faces strong headwinds, the HSBC/Markit China Services Purchasing Managers' Index (PMI) showed final prices of services hit a 15-month low in April as some firms were forced to cut prices to lift sales.

The services PMI rose to a four-month high of 52.9 in April from 52.3 in March, comfortably above the 50-point level that separates expansion from a contraction in activity on a monthly basis.

Some companies attributed part of the pick-up in new business to the strong stock market, which hit a seven-year peak in April, suggesting that the wealth effect had seeped into parts of the world's second-biggest economy.

But other firms reported greater stress. Final prices charged slipped to 49.2 last month, a low not seen since January last year and pointing to further pressure on profit margins. Companies also pared their business expectations, though the sub-index remained a good way above the 50-point level.

And while employment in the services sector grew modestly in April, HSBC economist Qu Hongbin cautioned against undue optimism, arguing that China's overall job market may have shrank last month due to factory layoffs.

"More (policy) measures may be required to ensure the economy does not slow further from the 7% annual pace of growth registered in the first quarter," Qu said.

Buffeted by a housing slowdown and anaemic growth in exports, manufacturing and investment, China's economy grew at its weakest pace in six years in the first quarter.

A Reuters poll in April showed most analysts expect the economy to expand 7% in 2015, right in line with the government's growth target, provided authorities further loosen monetary policy to stoke activity.

Analysts expect the central bank to further lower interest rates and banks' reserve requirements this year, despite having done so four times in the five months since November.

The services sector has accounted for the bigger part of China's economic output for at least two years, with its share rising to 48.2% last year, compared with the 42.6% contribution from manufacturing and construction.