BEIJING, May 22 (Reuters): China's factory sector turned in its best performance this year in May but still contracted for the fifth straight month, a survey showed on Thursday, with divergent signals on exports and jobs pointing to an uncertain outlook for the economy. A similar survey showed Japanese factories had contracted slightly in May but at a slower pace than in April, suggesting some recovery from the impact a sales tax increase last month.
The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index (PMI) rose to 49.7 in May from a final reading of 48.1 in April to be at its highest since December.
The first reading of China's economy in May was much stronger than the median forecast of 48.1 in a Reuters' poll, but, hovering just below the 50-point level that separates growth from contraction, it showed a slight drop in business.
That was still welcomed by those looking for signs of stabilization after a run of weaker-than-expected data this year, and the news lifted Asian stocks and the Australian dollar-a favorite market proxy for China's economic health.
"Looking at China as well as Japan, the Asian manufacturing business cycle could be stabilizing a bit in May after a tough April, but the improvement is modest," said Bill Adams, an economist at PNC Financial.
A breakdown of China's PMI showed the handful of closely-watched indices that measure output, domestic and foreign demand in the world's second-biggest economy all recovered sharply in May to rise back above 50 points.
New export orders had the biggest turnaround, climbing a hefty 3.4 points to 52.7, a level not seen since late 2010.
Yet parts of the PMI report were also cause for concern.
The employment index fell more than one point to be well under 50, the 13th consecutive month that jobs were lost in the manufacturing sector. A deteriorating labor market would worry the government, as jobs growth is seen as important for social stability.
