Surveys show China manufacturing extending recovery

* China manufacturing surveys show recovery gaining foothold

* Output at year high, overseas orders at 11-month high

* Markets wary of signs of green shoots in Japan (Adds details on China, other Asian economies, comments)

By Alan Wheatley and Simon Rabinovitch

BEIJING, July 1 (Reuters) - China's manufacturing sector extended a steady if unspectacular recovery in June, surveys released on Wednesday showed, adding to evidence across Asia that the regional economy is finally pulling out of a deep dive.

The official purchasing managers' index (PMI) for June rose to 53.2 from 53.1 in May, consolidating for the fourth month in a row above the watershed mark of 50.

A companion index compiled for brokerage CLSA improved to 51.8 from 51.2, its third month in positive territory, as output grew at the strongest rate in a year and overseas orders rose for the first time in 11 months.

A reading over 50 indicates an expansion in manufacturing sector, while one below 50 suggests contraction.

"It shows that the economy is in an upward trend," said Zhang Liqun, a researcher with the Development Research Centre, a think-tank under the State Council, China's cabinet.

Beijing responded to last autumn's slump in global demand with a massive 4 trillion yuan ($585 billion) stimulus package, ultra loose monetary and credit policy and tax breaks to support a range of sectors.

Alongside other timely data such as power consumption and tax revenues, which have both picked up lately, Wednesday's reports indicate that the pump-priming is achieving its intended effect.

"Manufacturing activity continues to accelerate and both domestic and overseas orders increased in June. Further improvement in export orders would be a surprise, but domestic demand for manufacturers should continue to grow as policy and the upturn in residential construction gain traction," said Eric Fishwick, head of economic research at CLSA.

For a graphic on China's PMI trends, click on: http://graphics.thomsonreuters.com/079/CN_PMI0709.jpg

GLIMMERS OF HOPE

China accounts for only 7 percent of global output at market rates, so it cannot be expected to haul the rest of the world out of recession. But global investors have responded positively to the improved news flow recently out of Beijing.

Japanese construction makers such as Komatsu and Hitachi Construction, which often rise when there are expectations of orders to be won in China, rose 2.6 percent and 1.9 percent, respectively, on Wednesday.

Shares across the region, by contrast, fell 0.35 percent as investors took the view that a turnaround to global recovery was likely to be a slow grind.

For instance, the Bank of Japan's closely watched tankan business survey for June showed corporate confidence improving from record lows plumbed three months ago.

But the survey's main sentiment index for big manufacturers did not recover as much as the market expected. It reached minus 48 from minus 58 in March, below forecasts of a minus 43 reading.

"The overall impression is that Japanese firms are facing a more severe situation than market players think," said Susumu Kato, chief economist at Calyon Capital Markets Japan.

The recovery in export business revealed in the Chinese surveys was partially reflected in South Korea, where exports fell by 11.3 percent in June from a year earlier, the slowest decline since October.

"The worst is apparently behind us, and the economy is gearing for a faster-than-expected recovery," said Song Jae-Hyok, an economist at SK Securities.

A survey of Indian manufacturers was also broadly positive, with a revival in domestic demand boosting activity to an eight-month high.

Economists at J.P Morgan last Friday raised their projection for second-quarter gross domestic product growth in emerging Asia, forecasting quarter-on-quarter growth of more than 10 percent at an annualised rate, reflecting assumptions that quarter-on-quarter growth in industrial output will surge at a 35 percent annualised pace.

In the case of China, the World Bank, the Organisation for Economic Cooperation and Development and a clutch of banks have all upgraded their growth forecasts in the past two weeks.

The government's goal of 8 percent GDP growth for all of 2009, once dismissed as fanciful, now looks attainable.

Mingchun Sun with Nomura in Hong Kong said the purchasing managers' surveys suggested that the revival in manufacturing was gaining a stronger foothold and reaffirmed his forecast of 8 percent GDP growth this year and 10 percent in 2010.

Zhang, the economist with the cabinet think-tank, said he expected China's annual GDP growth for the second quarter to accelerate to 8 percent from 6.1 percent in the first quarter.

Zhu Baoliang, deputy director of the State Information Centre, another research outfit, told the China Economic Times he was pencilling in a pick-up to a range of 7.5 percent to 8 percent as the process of destocking was now basically completed.

China is due to release second-quarter GDP data on July 16.

Not everyone is getting carried away.

Li Hongrong, an economist with Ping An Securities in Shenzhen, cautioned that momentum in investment and industrial output, corroborated by Wednesday's surveys, may fizzle out.

"It is hard to say whether economic growth will trace a V or a W shape, but we believe a slowdown will take place next year when the effects of the government's push run out," Li said.

(For PMI stories from around the world, click MCE- (Reporting by Alan Wheatley, Simon Rabinovitch, Aileen Wang and Zhou Xin; Editing by Ken Wills&Kim Coghill)