BEIJING, May 31 (Reuters) - China's manufacturing

activity unexpectedly fell in May, keeping alive calls for fresh

stimulus as a protracted property crisis in the world's

second-largest economy continues to weigh on business, consumer

and investor confidence.

The official manufacturing purchasing managers' index (PMI)

dropped to 49.5 in May from 50.4 in April, the National Bureau

of Statistics (NBS) said on Friday, below the 50-mark separating

growth from contraction and missing analysts' forecast of 50.4.

The disappointing number adds to a series of recent

indicators showing the $18.6 trillion economy is struggling to

get back on its feet, eroding earlier optimism seen after

better-than-expected output and trade data.

"I think the data particularly reflects soft domestic

demand, the housing sector continued to worsen and retail sales

were not strong," said Xu Tianchen, senior economist at the

Economist Intelligence Unit.

"The May reading may indicate a temporary blip. We'll

probably see an improvement in June as new government policies

start to impact, such as the property rescue plan and the

issuance of special sovereign bonds," he added.

The PMI's sub-indices for new orders and new export orders

both tipped back into contraction after two months of growth,

while employment continued to shrink.

The services sub-index under the NBS non-manufacturing

survey improved to 50.5 in May from 50.3 in April. But growth as

represented by the broader services index, which also includes

construction, slowed in May to 51.1 from 51.2 a month prior.

Problems in the property sector have had a negative impact

across broad areas of China's economy and slowed Beijing's

efforts to shift its growth model more towards domestic

consumption from debt-fuelled investment.

Retail sales last month grew at their slowest since December

2022 while new home prices fell at their fastest rate in nine

years, suggesting it is too early to say if the battered economy

has finally turned a corner.

The International Monetary Fund on Wednesday revised up its

China growth forecast by 0.4 percentage points to 5% for 2024

and 4.5% in 2025, but warned the property sector remained a key

growth risk.

China this month unveiled "historic" steps to stabilise the

property market, but analysts say the measures fall short of

what is required for a sustainable recovery.

The IMF said it saw "scope for a more comprehensive policy

package to address property sector issues."

Nie Wen, an economist at Shanghai Hwabao Trust, said the

decline reinforced the case for more support.

"There is still a need to strengthen stimulus on the demand

side, while at the same time sorting the credit channels as soon

as possible to avoid financial institutions' balance sheets

shrinking, which would have a negative effect on the economy,"

Nie said.