China growth path at risk as second-quarter GDP eyes three-year low BEIJING (Reuters) - China's economy likely grew at its slowest pace in three years in the second quarter of 2012, with data due later on Friday set to confirm expectations of a downward trajectory that leaves full year growth on course for its softest showing since 1999. The data is crucial for investors facing a slowdown not only in China, the world's second-largest economy, but anemic growth across the BRIC grouping of major emerging economies - Brazil, Russia, India and China - which combine as the biggest marginal generators of global growth. Economists polled by Reuters expect Q2 GDP to have grown by 7.6 percent from a year ago, marking the sixth straight quarter of easing growth. Such an outcome will leave analysts combing a raft of accompanying data to assess whether the second quarter marks the bottom - or an extension - of the downward cycle. "I still think Q2 is the bottom and I still think it'll be a shallow recovery profile, but the market might be disappointed with the GDP print if it comes out too close to 7.5 percent," Jeremy Stevens, China economist at Standard Bank, said. Inflation and trade data earlier this week sent a bearish shiver through financial markets as fast-easing consumer prices, outright deflation in producer prices and import growth at less than half the rate expected in June had investors pricing in the risk of a well-below consensus reading for GDP. Two interest rate cuts in the space of a month, accompanied by liberalization moves allowing banks to discount borrowing costs by a further 30 percent, underscored the risk of an undershoot to many investors - jeopardizing even Beijing's official full year GDP growth target of 7.5 percent. Some analysts interpreted the changes as a sign that the government will do everything possible to underwrite growth, short of unveiling an outright stimulus program akin to that of 4 trillion yuan ($635 billion) rolled out in 2009-10, ahead of a once-a-decade leadership transition to begin in the autumn. Others point to exports, which have held up reasonably well throughout the first half of 2012 in the face of stiffening headwinds of economic uncertainty in China's two biggest foreign markets - the European Union and the United States. Companies on at least three continents have blamed slowing Chinese growth for their worsening performance. This week alone, British fashion brand Burberry (BRBY.L) reported a decline in its China sales growth, U.S. chipmaker Advanced Micro Devices (AMD.N) warned of disappointing Q2 revenue because of softer than expected sales in China and Europe and China South Airlines (1055.HK) said its H1 net profit would likely fall in part on slower domestic growth. Data published on Thursday that showed new lending by Chinese banks at a three-month high of 919.8 billion yuan in June was taken by some market economists as further evidence that policy action taken so far is gaining traction. "Overall, Q2 saw a 24.4 percent year-on-year surge in new lending, which bodes well for GDP growth in Q3," Dariusz Kowalczyk, senior economist at Credit Agricole-CIB in Hong Kong, said in a note to clients. The data confirms our view that further rate cuts are not needed and thus are unlikely. Kowalcyzk and others though believe there will be more monetary accommodation, in the form of additional cuts to required reserve ratios (RRR) of banks, to ensure there is sufficient liquidity to maintain credit growth. Anecdotal evidence suggests great uncertainty among economists about when China's economy will reach the bottom of its current cycle, with many preparing to take the scalpel to full year forecasts which, according to the last Reuters consensus poll in April, call 2012 growth at 8.4 percent. Economists at the Asian Development Bank cut their full year China growth expectations for 2012 to 8.2 percent in new forecasts published on Thursday, down from the 8.5 percent they had estimated in April. Investor jitters rise the closer Chinese growth slips to 8 percent, as below that level of expansion was previously deemed insufficient to create jobs at the pace Beijing regarded as necessary to ensure social stability. That's why many will be crunching the flurry of data that accompany the GDP statistics for signs that on a sequential basis, the downturn has slowed or even stopped. Fixed asset investment data for the first half of the year, and industrial output and retail sales data for June are due for publication on Friday, with economists expecting annual growth of 20.1 percent, 9.8 percent and 13.5 percent, respectively. Fixed asset investment has been the key driver of economic expansion in China for a decade and is a major risk factor for investors watching its rate of growth ease back from 25 percent plus to around 20 percent on average so far this year - especially as the government's stated aim is to reduce its contribution to growth as it rebalances the economy. China's retail sector has remained relatively robust throughout, with consumers giving no real sign of concern about the risks of slowing growth. But it is industrial production growth - forecast to have edged up to 9.8 percent year-on-year in June from May's 9.6 percent - that will be the crucial gauge for Zhang Zhiwei, chief China economist at Nomura in Hong Kong given that the series has been recovering from April's 35-month low of 9.3 percent. If industrial production growth drops back below the April level, I think that would raise concerns and may trigger policy action. But if it rebounds further, it would be a positive signal for a second half economic recovery," Zhang said. Reporting by Nick Edwards; Editing by Alex Richardson