China Official April PMI Gains; Little Cause For Cheer - Wall Street Journal

--China's April official PMI rises to 53.3 from 53.1 in March

--April reading is below market expectations for 53.5

--CFLP analyst suggests economic growth may further slow ahead

--BoA-Merrill Lynch analyst says economy hit bottom in 1Q but cautions against over-optimism

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        By William Kazer      Of DOW JONES NEWSWIRES      

BEIJING (Dow Jones)--An official gauge of manufacturing activity showed improvement in April, and while economists said the data showed the economy was slowly gaining traction after a sluggish first quarter, they cautioned the way ahead was far from clear.

China's official manufacturing Purchasing Managers Index rose to 53.3 in April from 53.1 in March, according to data released Tuesday by the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics.

"Whilst things do look better, it is too early to break out the champagne," said Alistair Thornton of IHS Global Insight.

"It's hardly plain sailing from here. Policymakers continue to grapple with the challenge of loosening enough to prevent a sharp slowdown, but not loosening too much and sparking an inflationary spiral."

The April PMI was lower than the median forecast of 53.5 from seven economists polled by Dow Jones Newswires. A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 indicates contraction.

The official verdict on the data was also cautious.

"The PMI continued to rise in April, though at a more modest pace," CFLP analyst Zhang Liqun said in the statement. "It shows that China's economy has become more stable although there are still uncertainties."

Zhang added that the economic picture still could take a turn for the worse.

The barometer of manufacturing activity showed new export orders reviving in the month, though domestic new orders weakened from March and order backlogs deteriorated. Employment was unchanged from March.

China's economy expanded at a year-on-year rate of 8.1% in the first quarter, its slowest pace in three years.

But the government has pumped in additional credits into the banking system, and that is likely to continue.

Bank of America-Merrill Lynch economist Lu Ting said the figures confirm the house's prediction that the economy touched bottom in the first quarter.

Lu said that "pro-growth" policies, coupled with some pent-up demand for restocking by manufacturers and improved weather after an unusually cold winter, contributed to the pick up in the official PMI. But he cautioned against making overly optimistic assessments looking forward.

Other analysts noted that the official PMI covers mainly larger, state-owned companies, and that the smaller companies outside the survey have been harder hit by global economic weakness.

Standard Chartered economist Li Wei said the gap between big, state-owned companies and smaller firms not included in the PMI survey may be growing.

"The figure may send a positive signal to the market, but its effect should be limited," he said.

-By William Kazer, Dow Jones Newswires; 8610-8400-7713; william.kazer@dowjones.com

--Zhang Yajun contributed to this article.