China, India services lose some momentum

China's service sector lost momentum in October while India's shrank for a second month, surveys showed on Thursday, revealing the lagged impact of policy tightening and faltering global demand on Asia's two major economies.

Two purchasing managers' indexes (PMI) on China showed that the services sector expanded in October. The official PMI fell from the previous month and while the HSBC-Markit private-sector gauge rose to a four-month high, it was below the historical average.

In India, the HSBC-Markit PMI showed services activity shrank for a second consecutive month and to its weakest level in 2-12 years as new business growth stagnated.

Its seasonally adjusted PMI slumped to 49.1 in October, below the 50-mark that separates growth from contraction. It was at 49.8 in September.

The PMIs for both countries showed that input costs remain elevated, underscoring the challenges policymakers face as they start to shift their focus towards growth when the battle against inflation is far from over.

China's PMI readings point to a further slowdown of economic growth and easing inflation, said Xu Biao, an analyst with Everbright Securities in Shanghai.

"In terms of policies, the Chinese government has already started to make some small adjustments to relax a bit -- bank lending controls are eased and fresh funds are given to the railway ministry," he said.

"More fine-tuning, leaning towards policy relaxation, is on the way," Xu added.

China's official PMI, from the China Federation of Logistics and Purchasing (CFLP), fell to 57.7 in October from 59.3 in September. A new orders sub-index fell slightly to 52.5 in October from 52.8 in September.

The official survey, skewed towards big businesses, showed China's consumer-related service sectors remain stable, but investment-related sectors such as engineering and construction were particularly weak, CFLP said.

The HSBC PMI, which focuses more on smaller-to-medium sized businesses, rose to 54.1 in October, above September's 53.0 and its highest level since June, as new orders picked up for a second successive month.

The United States releases an activity report on services later on Thursday and the euro zone reports on Friday. They are expected to show that service sectors in both regions were largely steady in October from September, Reuters polls show.

Input costs for India rose sharply in October, driven up by wages and fuel prices, the survey showed, underscoring price pressures in the country where wholesale inflation, the main gauge, has been above 9 per cent for almost a year.

India's central bank, one of Asia's most hawkish, raised interest rates for the 13th time in 18 months last week. But it said the chances of another rate rise at its next review in December were relatively low because it expected inflation to fall.

In China, while HSBC-Markit PMI suggested the rate of cost inflation was at a four-month high, the official survey showed input price pressures eased in October.

Beijing has been walking a tightrope between fighting inflation and supporting small businesses that were most hurt by its tightening spree since last year.

Consumer inflation has eased from a near three-year high in July of 6.5 per cent. Beijing has maintained that tackling inflation is its main policy priority but it has also shown some concern about the risks to growth.

Premier Wen Jiabao was quoted by state radio last week saying that Beijing will fine-tune policy if necessary.

The government has announced measures to support small firms and has intervened to prop up bank shares in the stock market.

Manufacturing PMIs earlier this week showed India''s factory-sector-growth picked up for the first time in six months during October, while China's big manufacturers grew at their slowest pace since early 2009.