By Joe Cash
BEIJING (Reuters) - China's manufacturing activity expanded for the first time in six months and services picked up in October, indicating that Beijing's latest stimulus measures are helping the battered economy turn a corner.
The National Bureau of Statistics purchasing managers' index (PMI) on Thursday rose to 50.1 from 49.8 in September, just above the 50-mark separating growth from contraction and beating a median forecast of 49.9 in a Reuters poll.
In a further encouraging sign, the non-manufacturing PMI, which includes construction and services, rose to 50.2 this month, after it dropped to 50.0 in September.
Policymakers are banking that a last-ditch stimulus effort announced in late September will pull economic growth back towards this year's roughly 5% target and kick lending and investment back into gear, as a sharp property market downturn and frail consumer confidence continue to deter investors.
"This is primarily an indication of the early impact of the higher fiscal support, enabled especially by an acceleration in government bond issuance," said Xu Tianchen, senior economist at the Economist Intelligence Unit.
"There was a record amount of such issuance in August-September, which translated into fiscal spending."
The mood in the manufacturing sector has been depressed for months by tumbling producer prices and dwindling orders, with industry plagued by the same lack of confidence that has held back investors and domestic consumers.
SIGNS OF RECOVERY
There are early signs, however, that Beijing has switched into a higher stimulus gear to prop up the world's second-largest economy and that confidence is slowly building.
China is considering approving next week the issuance of over 10 trillion yuan ($1.40 trillion) in extra debt in the next few years, Reuters reported on Tuesday, which would primarily be used to help local governments address off-the-books debt risks.
Youth unemployment eased in September, suggesting measures such as employment subsidies aimed at encouraging firms to absorb millions of fresh graduates are having some effect.
Meanwhile, retail sales and factory output sales beat forecasts last month, suggesting demand is beginning to make a comeback.
"50.1 is the smallest possible expansion for the PMI but nonetheless bucks expectations for continued contraction, and is a positive sign that the small bounce back of industrial production that we saw in September should continue," said Lynn Song, chief economist for Greater China at ING.