Activity in China's manufacturing sector contracted for the first time in more than two years in the month of December amid a domestic economic slowdown and Beijing's ongoing trade dispute with the U.S.

The Chinese National Bureau of Statistics said on Monday official manufacturing Purchasing Managers' Index (PMI) was 49.4 — lower than the 49.9 analysts expected in a Reuters poll. The December reading was the weakest since February 2016, according to Reuters' record.

That was worse than November's official manufacturing PMI, which was 50.0. A reading above 50 indicates expansion, while a reading below that signals contraction.

In particular, new export orders contracted for a seventh straight month, with that measure falling to 46.6 from 47.0 in the previous month.

Meanwhile, China's official non-manufacturing PMI came in at 53.8, which was higher than the reading of 53.4 in November.

The services sector accounts for more than half of the Chinese economy and the "bright spot" of the improved on-month expansion in December points to a rebalancing of the Chinese economy toward more consumption, Nomura economists wrote in a note on Monday.

Economic data from the world's second-largest economy is being closely watched for signs of damage inflicted by the ongoing trade war between Washington and Beijing.