By Chester Yung

HONG KONG--The Nikkei Hong Kong Purchasing Managers Index rose to 50.3 in December from 49.5 in November, returning to expansion mode after 21 consecutive months of decline, index compiler IHS Markit said Thursday.

The improved December PMI was not driven by expansion in output and new orders. Instead, a surge in pre-production stock levels, underpinned by a marked increase in purchasing activity, boosted the headline reading, IHS Markit noted.

A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below that points to a contraction. The latest PMI indicates the business conditions in December improved for the first time since February of 2015, the index compiler added.

Despite the latest improvement, IHS Markit economist Bernard Aw said there were concerns that growth in other key variables such as output and new orders remained "elusive," adding that Hong Kong private-sector firms resumed job cutting at the end of 2016.

"Chinese demand for Hong Kong's products and services continued to wane. Overall client appetite remained sluggish, as reflected by lower volumes of output and new business," he said.

The PMI is derived from indexes that measure changes in output, new orders, employment, suppliers' delivery times and stocks of goods purchased. The PMI is based on a survey of about 300 companies.

Write to Chester Yung at chester.yung@wsj.com

(END) Dow Jones Newswires

January 04, 2017 20:15 ET (01:15 GMT)

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