Chinese Manufacturing Rebounds in October

China's vast manufacturing sector picked up moderately in October, snapping a three-month contraction and underscoring the resilience of the world's second-largest economy backed by robust domestic demand.

HSBC's China Flash Purchasing Managers' Index, 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, surpassing the 50-point level for the first time since July.

The PMI data could soothe persistent investor fears of an abrupt slowdown, or hard landing, in China's economy that could send an already fragile world economy into a recession.

"Thanks to the pick-up in new orders and output, the headline flash PMI rebounded back into expansionary territory during October, marking a steady start to manufacturing activities in the four quarter," said Qu Hongbin, China economist at HSBC.

"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 added.

China is vulnerable to fading demand from the United States and Europe, its two biggest export markets, but robust domestic demand -- consumption and investment -- and solid export growth to emerging markets have provided some insulation.

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. Most analysts believe the data point to an economic soft landing, rather than a crash.

The latest Reuters poll showed that China's economy is likely to grow an annual 8.6 percent in 2012, slowing from 9.3 percent this year but still far from a hard landing.

In comments published on Sunday, Premier Wen Jiabao said the government will make job creation a more urgent priority in the face of slowed economic growth and weakened exports.

In PMI releases around the world, the 50-point level typically demarcates expansion from contraction in factory output.

HSBC believes a PMI reading of 50 in China implies a 12-13 percent annual rise in industrial output and gross domestic product growth of around 9 percent.

Both new orders and new export orders sub-indices rose above the 50-point mark in October. But it's too early to tell whether the rebound in export orders will be sustained given the gloomy global outlook.

Meanwhile, factory price pressures eased in October, offering some comfort to Chinese policymakers who have been bent on wrestling inflation under control.

The input price sub-index fell to 54.3 in October from 58.8 in September.

Annual inflation eased to 6.1 percent in September, retreating further from three-year highs, although stubborn food price pressures will deter the central bank from loosening its policy reins anytime soon.

Inflation could ease further in the coming months but 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 October. It last raised interest rates in July. (Reporting by Kevin Yao; Editing by Ken Wills)