Manufacturing in China remained stuck in a rut in June, with HSBC flash PMI data showing some improvement from May, but still indicating contraction for a fourth straight month.
The HSBC flash PMI for June rose to 49.6, above the 49.4 forecast in a Reuters poll, but still below the key 50 level which separates contraction and expansion. The official PMI came in at 50.2 last month.
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The data were a mixed bag, Annabel Fiddes, economist at Markit, said in a statement with the data.
"On the one hand, the sector shows signs of improvement as output stabilized amid a slight pick up in total new work," Fiddes said. "On the other hand, manufacturers continued to cut their staff numbers, with the latest reduction the sharpest in over six years."
That suggests companies have muted growth expectations amid subdued demand both domestically and abroad, she said, adding that may spur authorities to step up stimulus efforts in the second half.
Fiddes isn't alone in her concern about the manufacturers' moves to lower their headcounts.
"Officials will be very worried about this," Frederic Neumann, a managing director at HSBC, told CNBC. "They've always said they draw the line at the labor market. They don't really care where headline GDP (gross domestic product) growth is as long as the labor market holds up and this particular reading suggests the labor market is still weakening and that would point to much more stimulus."
This reading isn't the only one which has spurred expectations that authorities will get out their policy toolkit again, with a slew of recent data, including imports and inflation, missing analysts' expectations. In the first quarter, China's economic growth slowed to 7.0 percent, its slowest in six years.
So far, the People's Bank of China (PBOC) has cut interest rates three times in the past six months amid concerns that the government's annual gross domestic growth (GDP) target of "around 7 percent" could be at risk. The latest rate cut followed two rounds of cuts in the reserve requirement ratio (RRR) of major banks, the latest one bringing the rate down to 18.5 percent.
But some see signs that the worst may be over for the economy.
"The big picture here is that price pressures are rebounding on the back of the recent recovery in global commodity prices," economists at Capital Economics said in a note Tuesday, citing the input price component's rise to a 10-month high. "Overall, today's PMI reading reinforces our view that the economy has started to find its footing. External demand is showing welcome signs of life. Meanwhile, domestic demand appears to have strengthened on the back of policy support, making an uptick in second quarter GDP growth now seem likely."
The latest China Beige Book (CBB) report, released Tuesday, said the soft data belie a "broad-based recovery."
The quarterly private-sector survey, which resembles the U.S. Federal Reserve's Beige Book, found that China's pickup in the second quarter was largely driven by a resurgence in the retail and real estate sectors.
Some analysts aren't convinced that the recovery will be particularly strong.
"Our picture on the economy is that it's still very weak," Jonathan Garner, chief Asia equity strategist at Morgan Stanley, told CNBC. "We're cautiously optimistic that the policy stimulus we've had and a better global economy leads to some pick up in the second half, but it's not going to be anything like the V-shaped pick up we saw in 2009."
--Ansuya Harjani and See Kit Tang contributed to this article.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1