China August flash factory PMI shrinks at fastest pace in 6-1/2 years

BEIJING (Reuters) - Activity in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled, a private survey showed, adding to worries that the world's second-largest economy may be slowing sharply.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July's final 47.8.

The reading was the worst since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

The flash PMI, the earliest economic measure to be released about China each month, is closely followed by global investors for clues on how the economy is faring.

A detailed breakdown of the activity survey showed conditions were deteriorating by almost every measure, with factory output sinking to a near four-year low, domestic and export orders declining at a faster rate than in July and companies laying off more workers.

The dismal August flash number bodes ill for upcoming official data, and could fuel fears that the China's economy is slumping faster than authorities anticipated, dashing hopes for a global recovery.

Chinese authorities have struggled to stabilise the country's stock markets after a near-collapse in early summer, and stunned financial markets this month by devaluing the yuan by nearly 2 percent, stoking fears about the health of the economy.

The central bank said the yuan move was a technical one and part of its currency reform process, but many investors fear the currency will be allowed to depreciate further amid political pressure to shore up flagging exports, potentially triggering a global currency war.

Devastating explosions at the key port of Tianjin may also have been a factor in weaker-than-expected activity this month.

(Reporting by Beijing Newsroom; Editing by Richard Borsuk and Kim Coghill)