China's flash factory purchasing managers index rose in July to its highest level since February, boosted by a pick up in output and signs of improvement in new export orders that offered relief to struggling financial markets.
HSBC's Flash China manufacturing purchasing managers index (PMI) rose to 49.5 in July from 48.2 in June, rising close to the 50 level that divides expansion from contraction. The increase was driven by a jump in the output sub-index to 51.2 - the best showing since October 2011.
The new orders sub-index recovered to a three-month high while new export orders gave their best showing since May, although both remained below 50 to suggest demand was still weak. An employment sub-index fell to its lowest level since March 2009.
The flash PMI is the first significant Chinese data point in the third quarter of the year and signals that a sequential improvement in the economy in the second quarter may be broadening as pro-growth government policies aimed at countering the global downturn gain traction.
Still, the HSBC PMI has been below 50 for nine straight months, showing a need for those policies to remain in place.
"This calls for more easing efforts to support growth and jobs," Qu Hongbin, chief China economist with index sponsor, HSBC, said in a statement accompanying the survey.
"We believe the fast falling inflation allows Beijing to do so and a more meaningful improvement of growth is expected in the coming months when these measures fully filter through."
China's economic growth has slowed steadily since 2010 as the intensifying euro area debt crisis has weighed on the global economy.
The PMI, compiled by UK data provider Markit, showed broad improvement across the manufacturing sector with five sub-indexes showing their rate of decline slowing and five showing a change of direction.
The output price sub-index broke above 50 for the first time in five months, a sign that final demand may be lifting factory gate prices, which have been in deflation for four months.The flash PMI is based on 85-90 percent of total PMI survey responses, set to be published in full around a week later.
The flash PMI steadied the euro and gave Asian shares a modest lift, although equity markets were largely lower on concern Spain is edging closer to needing a financial bailout.
"The data gave a slight boost to markets, but whether such effects are sustainable are doubtful as Europe struggles with its problems," said Hiroyuki Kikukawa, general manager at trading company Nihon Unicom.
Three-month copper rose almost 1 per cent and the Australian dollar erased early losses, largely in relief that the PMI suggested economic conditions in China were not worsening.
Flash PMI readings for euro zone manufacturing and services are due for release later on Tuesday. The headline readings are expected to be well below 50, underlining the view that the bloc is slipping into recession.
