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China Nov official factory PMI hits seven-month high

BEIJING (Reuters) - China's official manufacturing purchasing managers' index rose to a seven-month high of 50.6 in November from 50.2 in October, the National Bureau of Statistics said on Saturday.

The headline figure is in line with an economist poll by Reuters this week, and confirms a trend toward recovering growth in the world's second-largest economy.

A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.

While growth accelerated for large firms for the third month in a row, medium and smaller companies saw a retrenchment, with the decline more pronounced for the smaller firms, the NBS said in an accompanying statement.

"The improving numbers are mostly because of government investment. From the second quarter the government has unleashed a lot of projects, and that has started to be felt in the economy, but it's not a very healthy recovery yet," said Dong Xian'an, economist with Peking First Advisory.

The HSBC China flash PMI - which gathers more data from smaller, privately-held firms that have a strong export focus - signaled that November growth in the manufacturing sector had quickened for the first time in 13 months with a reading of 50.4 when it was published last week, reflecting a steady uptick in the economy.

China's economic health has improved since September, with an array of indicators from factory output to retail sales and investment showing Beijing's pro-growth policies are starting to gain traction.

Analysts said the end of a destocking cycle and a greater pace of investment would keep driving up domestic demand, and extend the recovery trend into the final quarter of this year.

Smaller and private firms are still pleading for greater access to credit and investment incentives, which have gone disproportionately to the state sector, particularly since the financial crisis of 2008-2009.

China's annual economic growth dipped to 7.4 percent in the third quarter, slowing for seven quarters in a row and leaving the economy on course for its weakest showing since 1999.

Given the recent signs of recovery, many analysts expect the economy to snap out of its longest downward cycle since the global financial crisis, and start to trend upwards in the fourth quarter.

But economists also warn of downside risks from still cloudy external markets. The European debt crisis and listless U.S. economy continue to crimp demand from China's two largest trade partners.

China's central bank has moved cautiously in easing monetary policy to underpin economic growth, wary of reigniting inflation and fanning property prices which are still high.

It cut interest rates twice in June and July and lowered banks' reserve requirement ratio by 150 basis points in three stages since last November, but has refrained from further cuts since July. The authorities have opted to inject liquidity via open market operations to pump short-term cash into money markets.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private companies. There are also differing approaches to seasonal adjustment between the two surveys.

This year's final HSBC PMI reading is due to be published at 0145 GMT on Monday.

(Reporting By Lucy Hornby; Editing by Daniel Magnowski)

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