With domestic activity stifled by government curbs on real-estate speculation, the potential damage to demand for China's factory products from a deeper European debt crisis seems a logical justification for a spending splurge.

"Maybe it would be easier for China if there were another global financial crisis. They could just stomp on the gas again and pick up the pieces a couple of years down the line," Tim Condon, Asia chief economist at ING in Singapore, told Reuters.

It could happen yet, as Greece perches on the precipice of a default that analysts at Berenberg Bank calculate would trigger headline losses of 425 billion euros ($543 billion), and spark contagion threatening euro zone viability.

The size of pre-emptive efforts elsewhere to absorb shocks from a deeper debt crisis - an 800 billion euro firewall for the euro zone, $1 trillion of firepower at the IMF - give voice to calls that Beijing should think big, not tweak the margins.

Condon's quip illustrates deliberate difficulty he says China has chosen in adjusting settings economy-wide to try to rebalance demand and output while cushioning growth's grind lower.

"The worrisome scenario is that things slow all year long and it turns into a pretty ugly year. That is certainly what the Shanghai Composite is telling us," Condon said.

The benchmark Shanghai stock index .SSEC is up a tiny 7 percent so far this year. It hit a near three-year low in January, failing twice since to hold above 2,450 points as investor confidence wavered.

Christopher Wood, equity strategist at brokerage CLSA reckons the clearest sign of Beijing preparing a major stimulus effort would be the Shanghai index climbing above 2,600.

Instead it fell 2.1 percent last week, the same week Beijing announced a 26.5 billion yuan ($4.2 billion) programme to subsidize purchases of energy-saving household electrical equipment - a drop in China's 50 trillion yuan economic ocean.

STRONGER THAN BEFORE

Some analysts say there is no need for Beijing to spend big as China is stronger than in 2009 when 4 trillion yuan ($635 billion) of stimulus came in the wake of the 2008-09 global financial crisis.

Back then firms had axed around 20 million Chinese jobs as global trade ground to a standstill, threatening the social stability China's Communist Party says justifies its rule.

Today's labor market is tight, wages are rising and employers struggle for staff.

That implies a risk of inflation catching hold if policymakers loosen too aggressively - it took two years to bring prices back under control after the last stimulus effort.

The 10.7 trillion yuan local government debt mountain created at the same time still remains to be conquered.

Analysts at consultancy GK Dragonmics applaud Beijing's resistance to a spending splurge as a sign that coddled state-backed firms should stop expecting handouts at the first whiff of economic woe.

They say a minor counter-cyclical boost is all the current downturn needs. A softly-softly approach is clearly underway.

Fiscal data for the first four months of 2012 shows year on year central government spending growth of 26.2 percent, more than twice the 12.5 percent growth in revenue.

The last time spending outpaced income in the first four months was 2009 when it jumped 31.7 percent year on year and revenue fell 9.9 percent.

Spending on education is up 31.3 percent to 468.6 billion yuan. It's up 17.7 percent on social security and job creation at 457.9 billion yuan. Agriculture spending is up 35.7 percent to 278.9 billion yuan. Transportation spending - a risk area from 2009's stimulus - is up 84.5 percent to 197.1 billion yuan. And 70.7 billion yuan has been spent on affordable housing.

Meanwhile budget allocations for fixed asset investment projects jumped 40 percent year on year in March and April.

NO FISCAL FANFARE

It has all been done without fanfare.

"Fiscal spending is about 20 percent of GDP, so that's about 10 trillion yuan. If you want to bring 1 trillion yuan a little bit forward, that would be fine. It seems like a big number, but for China it's not," said Ting Lu, China economist at Bank of America/Merrill Lynch in Hong Kong.

Which means the undershoot of April's economic activity and new lending numbers versus expectations could be quite transient, despite triggering a raft of downgrades to growth forecasts for Q2 and the full year.

The benchmark Reuters poll saw estimates for China's annual rate of GDP growth in Q2 scaled back to 7.9 percent from 8.3 percent before the data. Economists now expect 2012 growth of 8.2 percent versus 8.4 percent, though still comfortably above the government's 7.5 percent growth target.

Those calls may be too pessimistic, even if lagging data suggests that world's second biggest economy has not yet hit a cyclical bottom.

Nomura's China Compass, a proprietary leading indicator of nine gauges of economic activity, ticked up on the April data - its fifth consecutive monthly rise.

"The signal seems to be that a recovery is underway and that's probably one reason why the government is reluctant to loosen policy further," Zhang Zhiwei, chief China economist at Nomura, told Reuters.

"I think there's more in the pipeline, but it will take another couple of months to arrive," Zhang said. "But is that going to be enough to turn growth around, particularly with what's happening in Europe? That's the big question for investors."

(Editing by Mathew Veedon)

• A Permanent Economic Emergency