China's factory sector unexpectedly shrinks in January

BEIJING (Reuters) - Activity in China's factory sector contracted in January for the first time in more than two years, an official survey showed, a far worse result than expected that will add to worries about the country's choppy economic outlook this year.

The official Purchasing Managers' Index (PMI) fell to 49.8 in January from December's 50.1, the National Bureau of Statistics said on Sunday, a whisker below the 50-point level that separates growth from contraction on a monthly basis.

Analysts polled by Reuters had forecast a reading of 50.2.

January's 49.8 reading matches that of September 2012. The lowest reading on record was 49.2, in August 2012.

A housing slump, erratic growth in exports and a state-led slowdown in investment to help restructure China's economy has hurt China's economy in the past year, when growth sunk to a 24-year low of 7.4 percent.

"Most of the (sub)-indices in the PMI showed a downward trend, indicating that current economic growth is still in a downtrend," said Zhang Liqun, an economist at the Development Research Centre, a state think-tank.

The survey showed growth in output and new orders both cooled last month, while new export orders and employment shrank outright.

New export orders fell to 48.4, from 49.1 in December, while employment slipped from 48.1 the previous month to 47.9, a low not seen in at least a year.

A separate services PMI also released by the government on Sunday also added to the gloom by showing growth in the sector cooled to a one year low in January.

The official non-manufacturing fell to 53.7 from December's 54.1, the lowest level since January 2014.

Economists polled by Reuters expect the economic growth to slow further this year to around 7 percent, even with additional stimulus measures that included a surprise interest rate cut in November.

(Reporting by Koh Gui Qing; Editing by Richard Borsuk)