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Chinese Manufacturing Continues To Expand

China's manufacturing expanded in January suggesting stronger economic growth for the first quarter of 2010, despite government efforts to cool inflation.

SHANGHAI (AP) -- China's manufacturing expanded in January and the outlook was positive despite government efforts to cool inflation by tightening control over bank lending, two surveys showed Monday.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index, or PMI, edged down to 55.8 from December's 56.6 on a 100-point scale. Numbers above 50 show manufacturing activity expanding.

The index "shows the economic outlook is generally positive," the federation said in a statement.

A separate index issued by HSBC Corp. rose to 57.6 from December's 56.1, signalling what the bank called a "marked improvement" in conditions for manufacturers. The bank said its index has now risen 16 points from its low in November 2008.

"Industrial activity continues to accelerate," suggesting stronger economic growth for the first quarter of 2010, said HSBC economist Qu Hongbin in a statement. "But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months."

China's economic growth accelerated to 10.9 percent over a year earlier in the final quarter of 2009, driven by a 4 trillion yuan ($586 billion) stimulus.

But the government worries that a flood of lending by state banks last year to support the stimulus is fueling inflation and is tightening control to prevent a new surge of lending this year. Institutions were ordered last month to set aside more reserves to control credit growth and economists expect an interest rate increase this year.

China's industrial output has rebounded thanks to stimulus measures aimed at boosting sales of home appliances and autos.

The expansion of such policies to a wider area from the original nine of China's 31 provinces and big cities will help sustain that growth, Jing Ulrich, head of China equities at J.P. Morgan, said in a report to clients.

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