China's manufacturing activity picks up pace

This is as good as it gets for China: HSBC
This is as good as it gets for China: HSBC

China's manufacturing activity grew at its fastest pace in 18 months in October, official data on Friday showed, a positive sign from the world's second biggest economy after a recent run of disappointing numbers.

The official Purchasing Managers' Index (PMI) rose to 51.4 in October from 51.1 in September and was above analyst expectations for a reading of 51.2. It remained comfortably above the 50-mark that divides expansion from contraction.

(Read more: China HSBC flash PMI hits seven-month high)

HSBC meanwhile said that the final reading of its China October PMI was 50.9, unchanged from a flash estimate released last week. On this measure, the Chinese manufacturing sector grew at its fastest pace in seven months, lifted by new orders.

"The broad message here is that China's economy is still holding up. It's not exactly red hot but it's good enough for the time being," said Frederic Neumann, managing director and co-head of Asian economics research at HSBC.

Tomohiro Ohsumi | Bloomberg | Getty Images

Data released last month including news of a surprise fall in exports had raised some concerns about the outlook for the Chinese economy.

(Read more: Smog,so what? For expats, China has most to offer)

Analysts said question marks about the strength of the economy remained.

"It was slightly better than expected but we don't see a lot of excitement," said Pu Yonghao, regional CIO, APAC at UBS Wealth Management, referring to the official PMI data.

"Basically, China's economic momentum has been helped by inventory restocking, infrastructure projects, but overall, China still needs to face a lot of structural problems," he added.

(Read more: Is inflation a new risk for China's economy?)

China's benchmark Shanghai Composite stock index was down 0.3 percent in early Friday trade, shrugging off the upbeat PMI data.

UBS: China official PMI is no reason to celebrate
UBS: China official PMI is no reason to celebrate

Still, the positive news from China, Australia's biggest trading partner, helped lift the Australian dollar.

"This [official PMI data] is in line with our relatively benign growth outlook. With global demand momentum likely to pick up gradually and domestic demand growth remaining solid, we expect GDP growth to comfortably exceed the government's bottom line in the coming quarters," Louis Kuijs, an economist at RBS, said in a note.

"Such an outlook allows for a firmer monetary stance, which we expect to materialize more clearly in the coming month," he added.

(Read more: Is China causing a global wine shortage?)

China's government has a full-year growth target of 7.5 percent. The economy expanded at annual 7.8 percent in the third quarter.

"The third quarter may have been the peak [for growth],we're going to go sideways into the fourth quarter. Next year, we expect a renewed deceleration but this is as good as it gets for the time being,"said HSBC's Neumann.

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