* First reading above break-even 50 mark since Sept. '08
* Strongest since May '08
* Moves in opposite direction of CLSA PMI
* Most analysts see tentative sign of recovery
By Zhou Xin and Jason Subler
BEIJING, April 2 (Reuters) - A measure of activity in China's manufacturing sector crossed back into expansionary territory in March for the first time since last September, suggesting a marked improvement in industry as both output and new orders surged.
China's official purchasing managers' index (PMI) for March rose to 52.4 from 49.0 in February, the China Federation of Logistics and Purchasing (CFLP) said on Thursday.
The reading compared with a record low of 38.8 plumbed in November and is the strongest since May 2008.
A reading over 50 indicates an expansion of activity in the manufacturing sector while one below 50 suggests contraction.
Zhang Liqun, a researcher at the State Council's Development Research Centre who comments on the official figure for the logistics federation, said the improvement in the index pointed to an economic recovery.
"Economic growth in March is likely to pick up," Zhang said. "As the effects of macroeconomic policies gradually become visible, the economic growth rate is likely to pick up further in the second quarter."
Annual gross domestic product growth fell to 6.8 percent in the fourth quarter, down from 13 percent in all of 2007.
Exceptionally weak data for exports and industrial output in the first two months of this year suggest to many economists that growth probably slowed further in the first quarter.
The official PMI moved in the opposite direction of the PMI produced for brokerage CLSA, released on Wednesday. That measure fell to 44.8 in March from 45.1 in February, as a drop in new domestic orders snapped a three-month streak of increases. [ID:nPEK265513]
BUYING RAW MATERIALS
Output and new orders from both domestic and overseas clients all improved markedly in March, according to the official survey, driving a surge in manufacturers' purchases of raw materials.
The output sub-index rose to 56.9 from 51.2 in February, while new domestic orders were up to 54.6 and the quantities of purchases index hit 54.0. New export orders still showed contraction, at 47.5, but were stronger than the 43.4 reading a month earlier. For a breakdown, click on [ID:nBJC000304].
It was similar expectations of a rebound in demand for metals and other raw materials by Chinese manufacturers that led to a rally in commodity markets.
However, not all analysts were so sure the strong reading could be taken as a sign the economy is set to recover.
While the rise in the PMI is another positive sign for the economy, more time must pass before a recovery can be called, said Zhang Xiaojing, a researcher with the Institute of Economics under the Chinese Academy of Social Sciences.
"It is too early to say that the Chinese economy has hit bottom, and economic activity in the non-state sector remains largely weak," Zhang said.
The PMI data are an encouraging sign coming after recent strong lending and investment data and might be further evidence that fiscal stimulus is starting to have an impact, said Brian Jackson with Royal Bank of Canada in Hong Kong.
"It's likely that the Chinese economy is still slowing in response to weaker external demand but conditions do appear to be stabilising," Jackson said.