China’s non-manufacturing industries expanded at the slowest pace in four months in June, adding to concerns that efforts to tame inflation are curbing growth in the world’s second-biggest economy.

A purchasing managers’ index dropped to 57 from 61.9 in May, the China Federation of Logistics and Purchasing said on its website yesterday. A reading above 50 indicates an expansion. China’s economic growth target for this year will be “very challenging” to achieve, Vice Premier Wang Qishan said yesterday.

“The slowdown is a result of the Chinese government’s tightening measures to curb inflation,” said Shen Minggao, Hong Kong-based head of China research at Citigroup Inc. “The government is expected to continue the current measures at least in July as inflation is still high.”

Signs in the report of a slowdown in the service, retail and catering industries add to evidence China’s growth is cooling, with data last week showing a manufacturing index fell to its lowest level since February 2009. The People’s Bank of China has paused for 13 weeks in raising benchmark interest rates, the longest gap since increases began in October.

The Shanghai Composite Index rose 1.2 percent to 2,791.6 at 10:12 a.m. in Beijing, amid speculation slumping growth in manufacturing and services may spur the government to halt increases in interest rates and provide more assistance to the nation’s smaller businesses.

The domestic and global situation is “extremely complicated and uncertain”, making it more difficult for the government to strike a good balance between developing the economy and curbing inflation, Vice Premier Wang said yesterday, according to a statement from the State Council.

The Communist Party is boosting investment in affordable housing to counter a slump in manufacturing growth. The government aims to build 10 million low-income housing units this year, as part of the target set by Premier Wen Jiabao to construct 36 million housing units during the next five years.

Vice Premier Wang said micro-financing institutions should be developed to help small companies raise funds.

“The survival and development of small companies are directly linked to employment growth, economic transition, and social stability,” Wang said during a trip to the northern province of Hebei, according to the State Council.

The non-manufacturing PMI is based on data from industries including real estate, transport, retailing, catering and software. China’s home prices eased in eight of the country’s 10 biggest cities in June as the government expanded efforts to curb the risk of asset bubbles in its housing market, SouFun Holdings Ltd. said July 1.

Slowing manufacturing “caused a reaction in producer services,” Cai Jin, the Federation’s president, said in yesterday’s statement. He added that “the index level still shows China’s non-manufacturing industries are maintaining quite quick growth. Affordable housing construction has accelerated.”

The central bank has raised reserve requirements 12 times and interest rates four times since the start of last year to tame inflation that reached a 28-month high of 5.5 percent in May.

Chinese stocks are “oversold” as concerns such as bank loans to local government financing vehicles and the slowdown in the real estate industry are being factored in by investors, Shen said in a phone interview yesterday.

Inflation may climb to 6.5 percent in June because of surging pork prices, according to Shenyin & Wanguo Securities Co. The People’s Bank of China may increase borrowing costs around the time of the release of June economic data, scheduled for July 15, Shenyin & Wanguo, ranked China’s most influential research provider by New Fortune magazine last year, said in a June 30 report. (Bloomberg)

As the tightening continues, “we may see more of a slowdown in consumption in industries including real estate and auto,” Citigroup’s Shen said.