August 1, 2010 –   * Official PMI falls to 51.2 (forecast 51.1) vs 52.1 in June

* Government economist still sees 2010 GDP growth at 9.5 pct

* New export index falls, remains above 50 boom-bust line

BEIJING, Aug 1 (Reuters) - China's vast manufacturing sector cooled further last month in response to the gradual withdrawal of monetary and fiscal stimulus and a drive by the government to rein in real-estate speculation.

The official purchasing managers' index (PMI) fell to 51.2 in July from 52.1 in June and 53.9 in May, the China Federation of Logistics and Purchasing (CFLP) said on Sunday.

The reading was close to the median forecast of 51.1 in a Reuters poll of 11 economists. [ID:nTOE66Q030]

"The Chinese economy is slowing down due mainly to the ongoing property tightening measures, but the slowdown is clearly not as dire as some expected," said Ting Lu, an economist with Bank of America Merrill Lynch in Hong Kong.

"We don't think the current situation warrants an all-out fight to rescue growth," he said in a note to clients.

The PMI is designed to provide a timely snapshot of business conditions across a wide range of industries. A figure above 50 indicates expansion; a number below 50 points to contraction.

Although the index has now fallen for three months in a row, it has been above the boom-bust mark of 50 since February 2009.

Government economist Zhang Liqun said he expected the economy would continue to level off but full-year growth would still be around 9.5 percent.

Gross domestic product in 2009 expanded 9.1 percent.

While the foundations for Chinese exports and investment were fragile, Zhang said he did not expect overseas shipments to contract and a sharp slowdown in investment was unlikely.

EXTERNAL DEMAND KEY

The government has sharply reduced the growth rate of credit and broad money in recent months after a record surge in lending last year by state-controlled banks to supplement Beijing's 4 trillion yuan anti-crisis fiscal stimulus package.

Key to steering policy back to normal is a cut in this year's bank lending quota to 7.6 trillion yuan from 9.5 trillion, or nearly 30 percent of annual output, in 2009.

The government has also introduced an array of measures to curb property speculation for fear that prices in some cities had soared beyond the reach of ordinary people and were feeding on themselves.

"We know Chinese growth is slowing and this number provides confirmation of this. But the strength of external demand in the months ahead will probably be the key factor," said Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong.

"If exports hold up, China's slowdown should be moderate and not require a reversal of policy. But if weakness in the euro area and the U.S. does major damage to Chinese exports, Beijing will likely face pressure to deliver a renewed surge in investment spending," he said in a note.

The index for new export orders dipped to 51.2 in July from 51.7 in June but remained in expansionary territory.

The index for stocks of finished goods fell below 50, possibly suggesting that manufacturers will have to replenish their inventories in coming months by scaling up production.

The logistics body, which compiles the index on behalf of the National Bureau of Statistics, said the PMIs for the electronics, metals and general machinery sectors were above 50.

So were the indexes for everyday consumer goods and products used in the manufacturing process.

But the PMIs for ferrous and non-ferrous metals, rubber and plastics were all below 50, as were the indexes for materials and energy-related enterprises.

For a breakdown of the index, click on [ID:nTOE66Q06K] (Reporting by Aileen Wang and Alan Wheatley, editing by Jonathan Thatcher)