By Kevin Yao
BEIJING (Reuters) - Activity in China's vast manufacturing sector hit a four-month high in August as new orders rebounded, a preliminary private survey showed on Thursday, reinforcing signs of stabilization in the world's second-largest economy.
The Flash HSBC Purchasing Managers' Index rose to 50.1 from July's final reading of 47.7, which was the weakest in 11 months, though it barely passed the watershed 50 line which demarcates expansion of activities from contraction.
The government has announced a series of targeted measures to support the slowing economy, including scrapping taxes for small firms, offering more help for ailing exporters and boosting investment in urban infrastructure and railways.
"It confirms that the economy has stabilized in the short term and downside risks for H2 have declined," said Zhiwei Zhang, China economist at Nomura in Hong Kong.
The Australian dollar jumped and Asian shares pared early losses after the PMI report but investors remained wary of negative fallout for Asia if the U.S. central bank begins to taper back its massive stimulus program as early as next month.
Copper rose and crude oil prices bounced off their early lows.
A sub-index measuring new orders rose to a four-month high of 50.5 in August from 46.6 in July. But the sub-index on new export orders edged lower in a reminder of weak global demand.
The employment sub-index of the flash PMI also picked up in August, but still hovered below the 50 watershed line.
"This is mainly driven by the initial filtering-through of recent fine-tuning measures and companies' restocking activities, despite the continuous external weakness," said Hongbin Qu, chief China economist at HSBC.
"We expect further filtering-through, which is likely to deliver some upside surprises to China's growth in the coming months."
The flash HSBC PMI, compiled by Markit Economics Research, is the earliest available indicator of monthly activity in the Chinese economy, and tends to focus more on small to mid-sized firms in the private sector.
NO QUICK RECOVERY IN SIGHT
Analysts in a Reuters poll forecast annual GDP growth of 7.4 percent in the third quarter and the full-year growth of 7.5 percent, in line with the official target.
But Zhang at Nomura said he saw upside risks to his 7.4 percent GDP forecast for the third quarter as growth may pick up from the 7.5 percent pace in the second quarter.
"Nonetheless we believe a strong H2 recovery to above 8 percent is unlikely, as rising interest rates will pressure investment. We still expect growth to slow to 6.9 percent in 2014."
Fan Jianping, chief economist at the State Information Center, a top government think-tank, said annual economic growth may hover around 7.5 percent in the third and fourth quarters of 2013.
"As long as China's growth rate remains above 7 percent, there will be no crisis. Double-digit growth is not in line with China's new reality," he told reporters on Wednesday.
Like some of its emerging market neighbors, China saw capital outflows for the second consecutive month in July, suggesting its sluggish economy is still deterring investors. But the pace at which money is leaving the country appears to be slowing and its markets have not been as volatile as in India or Southeast Asia.
The final HSBC PMI for August is due to be published on September 2, a day after the release of an official government survey. The official PMI, which focuses on big and state-owned firms, has been generally rosier than the private survey, which targets small and private companies.
Annual profit growth in China's state firms picked up pace in the first seven months of 2013, official data showed on Tuesday, offering new signs that the economy may be regaining momentum in the second-half of the year.
Upbeat data for July ranging from factory output and exports to retail sales has raised hopes that China's economy may be stabilizing after slumping for more than two years.
Chinese leaders, while making clear they will accept some economic slowdown as they push through reforms, have expressed confidence of meeting their 7.5 percent growth target this year - which would be China's slowest growth in 23 years.
Annual economic growth slowed to 7.5 percent in the April-June period from the 7.7 pct in the previous three months - the ninth quarter of slowdown in the past 10 quarters.
(Additional reporting by Koh Gui Qing and Xiaoyi Shao; Editing by Kim Coghill)