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Impressive China data fuels optimism on growth

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A raft of economic data out of China on Tuesday added to the growing list of positive surprises from the world's second-largest economy in the recent weeks.

China's activity data was very impressive, Ting Lu, China economist at Bank of America Merrill Lynch told CNBC on Tuesday. "Overall, we have a picture that the economy is recovering from domestic demand to external demand, from investment to consumption."

The data provides evidence that China's economic recovery is becoming more broad-based, say economists, who expect growth to accelerate in the third quarter from the previous three months.

(Read more: China's economy coming up trumps)

"With a number of other emerging markets mired in turmoil as the U.S. [Federal Reserve] gets prepared to taper its [quantitative easing] program, China stands out as a safe haven with its resilient growth, stable currency and strong balance of payments," he added.

Industrial output came in well above expectations, rising 10.4 percent on year in August, government data showed on Tuesday, above a Reuters forecast for a 9.9 percent rise.

Meanwhile, retail sales climbed 13.4 percent on year in August, above market expectations for a 13.2 percent rise.

Fixed asset investment grew 20.3 percent on year in the first eight months of 2013, just above forecasts for a 20.2 percent rise.

(Read more: Goldman upgrades China growth, cuts India outlook)

Financial markets reacted positively to signs the mainland economy is getting back on track, with the Shanghai Composite and Hang Seng Index rising 1.2 percent and 1 percent, respectively.

With the three key drivers of China's economy – exports, investment and consumption – rebounding in August, Li Huiyong, economist at financial services company Shenyin & Wanguo Securities, told Reuters he expects gross domestic product (GDP) growth to rise above 7.6 percent in the July-September quarter, from 7.5 percent in the previous three months.

Lu of Bank of America Merrill Lynch added that he sees "clear upside risk" to his 7.6 percent growth forecast for the current quarter.

(Read more: China a 'stallion' amid emerging market turmoil)

Among the most bullish on the economy's prospects is Stephen Roach, former Morgan Stanley Asia Chairman, who believes the economy is headed back towards 8 percent growth by year-end.

"The downside risks in China were vastly overblown from the start," he said, citing more encouraging data including purchasing managers index (PMI) readings and exports.

"By my count, this is the fifth hard-landing in ten years that has turned out to be a soft landing."

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

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