Shanghai market volatile due to lower PMI

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SHANGHAI stocks swung between gains and losses this morning as data showed the manufacturing activity at state-owned companies cooled unexpectedly in January, indicating the country's economic recovery is still fragile.

The key Shanghai Composite Index shed 0.02 percent to 2,385.02 points by midday with a total turnover of 54.7 billion yuan (US$8.8 billion).

China's official Purchasing Managers' Index, a gauge of manufacturing activity slanted more towards state-owned firms, eased to 50.4 in January, weaker than December's reading of 50.6, according to the China Federation of Logistics and Purchasing.

A reading above 50 indicates the activity is expanding. The January PMI fell for the first time in six months and was lower than the market expectation of 50.9.

"The weaker-than-expected PMI showed that China's economic recovery is still bumpy," said Liu Ligang, chief economist at ANZ Bank Great China. "A sharp drop in new orders reflects a weak, unstable external demand."

However, a separate report by HSBC Holdings PLC indicates that China's manufacturing activity at private and export-oriented firms continued to improve, climbing to a two-year high of 52.3 in January, from 51.5 in December.

Steel makers retreated after the China Iron and Steel Association said the gross profit of its more than 80 members plunged 98 percent to 1.58 billion yuan. Inner Mongolia Baotou Steel Union Co dropped 3.6 percent to 5.13 yuan. Baoshan Iron and Steel Co, China's largest listed steel mill, shed 0.2 percent to 5 yuan.

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