BEIJING (Reuters) - China's factory activity expanded at its fastest pace in 18 months in July as new orders surged, a preliminary HSBC survey showed on Thursday, the latest indication that the economy is picking up as government stimulus measures kick in.
The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose to 52.0 in July from June's final reading of 50.7, beating a forecast of 51.0 in a Reuters poll.
It was the highest reading since January 2013, and above the 50-point level that separates growth in activity from contraction for the second consecutive month.
"Economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through," said Qu Hongbin, chief economist for China at HSBC.
"We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery."
Mainland China stocks jumped after the PMI report while shares in the rest of Asia edged higher. The Australian dollar hit a three-week high on prospects of stronger exports to China.
A breakdown of the survey showed most of 11 sub-indices that measure output, domestic and foreign demand improved substantially from June.
A sub-index measuring new orders, a gauge of demand at home and abroad, hit a 18-month high of 53.7, while the sub-index for output also rose to a 16-month high in June.
The employment index also improved from May, though it was still a shade under 50, which implies that jobs are still being lost in the manufacturing sector.
Any marked weakening in the labor market would raise alarm bells for China's government, which regards healthy employment levels as a top policy priority and an important condition for social stability.
Premier Li Keqiang said last week that economic growth of slightly more or less than 7.5 percent this year would be acceptable as long it still led to new jobs and higher wages.
China's economy grew slightly faster than expected in the second quarter as the burst of official stimulus paid dividends, but some analysts say the recovery appears largely dependent on government assistance.
Economists believe Beijing will likely need to offer further support to meet its growth target of around 7.5 percent for the full year, particularly if the already cooling property market begins to deteriorate more sharply.
Since April, China has steadily loosened policy by reducing the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing.
(Reporting By Xiaoyi Shao and Koh Gui Qing; Editing by Kim Coghill)