China's manufacturing PMI expands

A Chinese manufacturing index unexpectedly expanded in August from an 11-month low, adding to signs the world's second-biggest economy is strengthening after a two-quarter slowdown.

The preliminary reading of 50.1 for a Purchasing Managers' Index released on Thursday by HSBC Holdings Plc and Markit Economics compares with a final figure of 47.7 in July. The number exceeded all 16 estimates in a Bloomberg News survey and was the first reading since April above the 50 mark that divides contraction from expansion.

Domestic demand fueled the gain after Premier Li Keqiang rolled out measures to support growth, including tax breaks for small businesses and an increase in railway investment. An index of export orders slid at a faster pace, indicating limits on the boost that China can expect from overseas orders as the US Federal Reserve considers winding back stimulus.

"Domestic demand is strong enough to support 7.5 per cent growth in 2013," said Ken Peng, senior economist at BNP Paribas SA in Beijing. "Almost all of China's economic data since July has shown improvements and suggests a rebound is underway."

The 2.4-point jump in the preliminary PMI reading was the biggest gain since August 2010 when the gauge rose 2.5 points to 51.9, according to data compiled by Bloomberg.

China's benchmark stock gauge, the Shanghai Composite Index (SHCOMP), gave up earlier gains of as much as 0.5 percent and was 0.3 per cent lower at 2:18 pm local time. The MSCI Asia Pacific Index was one per cent lower at 3:24 pm in Tokyo after minutes released yesterday from the Federal Open Market Committee showed officials support stimulus cuts this year if the economy strengthens.

Concerns recede
The main cause of China's improved performance is increased confidence as Communist Party leaders indicate a commitment to sustaining growth and concerns recede after an interbank lending squeeze in June, said Lu Ting, head of Greater China economics at Bank of America Corp in Hong Kong. Li has unveiled measures to support growth after a two-quarter slowdown. China will reach the government's 7.5 per cent growth target this year and maintain that pace in 2014, a Bloomberg News survey of economists indicates.