Signs of stability in China’s manufacturing industry in September may ease concern the world’s second-largest economy will suffer a slump in economic expansion that escalates the risk of another global recession.

The Purchasing Managers’ Index published Oct. 1 by the China Federation of Logistics and Purchasing rose for a second month, to 51.2, with new export orders gaining and an inflation measure ― factories’ input costs ― moderating. A separate PMI from HSBC Holdings Plc. and Markit Economics on Sept. 30 was unchanged from August, at 49.9. Readings above 50 signal expansion.

“That’s a nice break in a grossly bearish environment,” Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG, said of the Oct. 1 PMI data. “I don’t think that the Chinese economy is out of the woods, but any good news is great news.”

The figures bolster the odds that Premier Wen Jiabao’s government will succeed in defusing the fastest gains in consumer prices since 2008 without a collapse in China’s growth, the strongest among the major economies. Twelve percent of global investors in a Bloomberg poll last week predicted a slowdown in Chinese gross domestic product gains to less than 5 percent within a year, a pace unseen in the past two decades. 

Wen, on the eve of the weeklong National Day holiday that began Oct. 1, said the trend of relatively fast consumer price gains was “under control.” The Oct. 1 manufacturing reading was the highest in four months, and exceeded the 51.1 median estimate in a Bloomberg News survey of 13 economists.

The MSCI All-Country World Index of stocks posted its biggest quarterly loss since 2008 as concerns increased that Europe’s debt crisis will trigger a global recession and the Federal Reserve said there are “significant downside risks” to the U.S. economy. The U.S. dollar strengthened as investors looked for a safe haven and oil fell to a one-year low.

In China, the benchmark Shanghai Composite Index fell Sept. 30 to its lowest close since April 2009 on heightened risks of recession in the U.S. and Europe and also on concerns that the government’s campaign to curb inflation by tightening monetary policy will cause a deeper-than-anticipated slowdown in the Chinese economy.

China’s economy is slowing gradually and the chances of a “hard landing” are small, Bank of America Corp. economist Lu Ting said. At the same time, investors “should also resist being too positive on this PMI reading as the reading of 51.2 might be slightly biased upwards by seasonality,” he said.

Manufacturing in China tends to rise in September ahead of the weeklong National Day holiday, when factories close, and before the Christmas shopping season in the U.S. and Europe. The reading for September 2010 was the highest in four months, the same as it was this year, and in September 2009, the measure was the highest in 15 months.

Ken Peng, senior China economist at BNP Paribas SA, said the 0.3 percentage point gain in the September PMI from August was the smallest month-to-month increase for a September on record. The average increase was 2.3 for the month in the period from 2005 to 2010, he said.

The manufacturing index compiled by the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers at more than 820 companies in 20 industries. It hasn’t fallen below 50 since February 2009.

The index from HSBC Holdings Plc and Markit Economics, which reflects a survey of more than 400 companies, is weighted toward small businesses that have been hit harder by tightening measures, according to economists including Bank of America’s Lu and Australia and New Zealand Banking Group Ltd.’s Liu Li-Gang. The official PMI has a greater focus on larger enterprises, they say. 

(Bloomberg)