* China April industrial profits +4.0% y/y vs -3.5% in March
* Return to growth adds to divergent activity data
BEIJING, May 27 (Reuters) - China's industrial profits swung back into positive territory in April while gains over the first four months period held steady at first-quarter levels, official data showed on Monday, suggesting steps to prop up the economy had partially worked.
Profits at China's industrial firms rose 4.3% in the January-April period from the same period a year earlier, data from the National Bureau of Statistics (NBS) showed on Monday, unchanged from a 4.3% increase in the first quarter.
For April alone, profits were up 4.0%, versus a 3.5% slide in March.
The pickup in earnings followed export-led growth in factory output over the past month while retail sales unexpectedly slowed, underscoring uneven recovery.
"Domestic effective demand remains insufficient while the external environment is still complicated and severe," said NBS statistician Wei Ning in a separate statement, noting that the foundation for improvement in industrial profits needs to be consolidated.
Profit woes loom large even for the electric vehicle sector, as slowing demand and a brutal price war in the world's largest auto market weigh on automakers.
Li Auto, one of the few profitable Chinese EV makers, posted a 37% fall in first-quarter profit, missing estimates.
Earnings erosion against signs of accelerating industrial output and the export rebound expose the frailty of domestic demand, strengthening the case for more policy support to prop up the economy.
Earlier this month, China unveiled "historic" steps to stabilise its struggling property sector, and the finance ministry fired the starting gun on the issuance of 1 trillion yuan in long-dated special treasury bonds.
State-owned firms saw profits drop 2.8% in the January-April period, foreign firms booked a 16.7% gain while private-sector companies recorded a 6.4% rise, the NBS data showed.
Industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.76 million) from their main operations. ($1 = 7.2388 Chinese yuan) (Reporting by Qiaoyi Li and Ryan Woo; Editing by Sonali Paul and Himani Sarkar)
