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Chinese manufacturing is contracting as activity hits its weakest pace in seven months, according to HSBC's preliminary reading on the sector for February, released Thursday. The HSBC/Markit "flash" version of its monthly Purchasing Managers' Index dropped to 48.3 compared to a final reading of 49.5 in January. A reading below 50 suggests contraction, while one above 50 shows expansion. The subindex for manufacturing output also hit a seven-month low, while the employment gauge showed a faster decrease than in the previous month. The new-orders component swung to a decrease as well, with new export orders also showing a decline, though at a slower pace than in January. HSBC chief China economist Hongbin Qu said the result reflected "renewed destocking activities." Qu said that "Underlying momentum for manufacturing growth could be weakening. We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year." The flash PMI usually includes 85% to 90% of the survey responses used for the final report, which is due out March 3. Stocks lost ground following the data, with Hong Kong's Hang Seng Index moving to a 0.9% loss from a 0.1% gain, while the Shanghai Composite was 0.6% higher, paring a 1.5% rally before the release. The Australian dollar fell to 89.49 U.S. cents from 90.03 U.S. cents.