By Kevin Yao
HSBC's flash purchasing managers' index (PMI) also showed price pressures eased in China, underlining consumer price data that has shown a slight pullback in inflation from three-year peaks.
The flash PMI, designed to give an early snapshot of the month's factory activity, rose to 51.1 in October from September's final reading of 49.9 as new orders and new export orders expanded.
The reading surpassed the 50-point level demarcating expansion from contraction for the first time since June, when the PMI was 51.6.
"Meanwhile, inflation components within the PMI results confirmed stable output prices growth and slower input price inflation. All these data confirm our view that there is no risk of a hard landing in China," he said.
Qu expects annual industrial output growth to hover around 13 percent in October and the central bank to keep monetary policy stable in the coming months.
Both new orders and new export orders sub-indexes rose above the 50-point mark in October. Given the gloomy global outlook, however, it is too early to determine if the rebound in export orders can be sustained.
Still, the data provided support to financial markets, which were already firm on hopes that euro zone leaders were moving closer to stemming the debt crisis. Hong Kong stocks were up 4 percent. <.HSI>
China is vulnerable to fading demand from the United States and Europe, its two biggest export markets. China's trade surplus narrowed in September for the second straight month and annual exports growth to the European Union more than halved compared with August.
But robust domestic demand -- consumption and investment -- and solid export growth to emerging markets have provided some protection.
The worst for China's economy and the rest of the world could come if Europe fails to contain the sovereign debt crisis, said George Worthington, chief economist for the Asia Pacific at IFR Markets, a Thomson Reuters unit.
"But domestic demand conditions seem solid and enough to keep the economy growing by around 9 percent, judging from the rebound in the PMI from a low of 49.3 back in July," he said.
China's annual economic growth slowed to 9.1 percent in the third quarter from 9.5 percent in the second quarter and 9.7 percent in the first.
Growth is expected to slow further. A Reuters poll showed analysts expect growth to weaken to 8.6 percent in 2012 from 9.3 percent this year.
Most analysts believe data points to an economic soft landing, rather than a crash for China. Many define a hard landing as a sudden dip in quarterly GDP growth below 8 percent, which they say could drive up unemployment.
However, the government has announced some measures to support the economy. In comments published on Sunday, Premier Wen Jiabao said the government will make job creation a more urgent priority.
Many of the country's small firms are breathing easier since the government took steps to expand financing support to small firms, said Zhu Jianfang, chief economist at CITIC Securities.
In addition, the central bank appears to be slowing down the appreciation of the yuan, partly to help Chinese exporters.
NO IMMINENT POLICY SHIFT SEEN
The HSBC data showed factory price pressures eased in October, offering some comfort to Chinese policymakers who have been trying to bring inflation under control.
The input price sub-index fell to 54.3 in October from 58.8 in September.
Annual consumer inflation eased to 6.1 percent in September, retreating further from three-year highs, although stubborn food price pressures will keep the central bank guarded about loosening policy prematurely.
Inflation could ease further in coming months but the full-year rate is almost certain to overshoot the government's 4 percent target.
The central bank has raised interest rates five times and lifted banks' reserve requirements nine times since last October. It last raised interest rates in July.
"We may have to wait until the end of the year to see a relaxation of monetary policy, although there could be some structural policy fine-tuning before that," Zhu said.
(Reporting by Kevin Yao; Editing by Ken Wills and Neil Fullick)