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China official PMI seen hitting 18-month high in October

An employee works inside a steel factory in Caofeidian on the northeastern coast of China's Hebei province, October 11, 2013. REUTERS/China
An employee works inside a steel factory in Caofeidian on the northeastern coast of China's Hebei province, October 11, 2013. REUTERS/China

By Natalie Thomas

BEIJING (Reuters) - China's manufacturing activity in October likely grew at its fastest rate since April 2012, a Reuters poll showed, adding to signs of a stabilization in the world's No.2 economy as the government readies a series of key economic reforms.

The official manufacturing purchasing managers' index (PMI) is forecast to reach 51.2 from September's 51.1, according to the median estimate of 11 economists, remaining well above the 50 point line separating expansion from contraction.

A preliminary PMI survey last week by HSBC and Markit Economics showed that the factory sector grew at its fastest pace in seven months in October.

A firm reading in the official PMI could help put to rest worries that the economy may slow down significantly in the fourth quarter.

"We expect a continued moderate growth improvement in the fourth quarter," said Wei Li, an economist with Standard Chartered in Shanghai.

Concerns had surfaced after disappointing export figures in September and a one-point drop in the final HSBC/Markit PMI figures for the month from its preliminary estimate.

"I'm expecting both the final HSBC PMI and the official number to be close what the flash was signaling in September, and what the flash signaled again in October," said Tim Condon, Asia economist at ING in Singapore.

Condon said that bad weather had played a role in the divergence between the initial and final HSBC PMI figures for September.

The official PMI is weighted more towards bigger and state owned enterprises and tends to paint a rosier picture than the private survey, which focuses more on smaller and private sector firms.

Economists in a recent Reuters poll saw China's economy growing at 7.5 percent in the fourth quarter from 7.8 percent in the third.

The government has said it would accept a slowdown while it pushes forward with its reform agenda.

That agenda will be the focus of the Communist Party's third plenary session starting on November 9. The government wants to shift the economy away from a reliance on exports and investment and more towards consumption.

"Market confidence will be on the rise ahead of the third plenum, as people are hoping that we will see some more comprehensive economic reforms, so October should be a good month."

Earlier this week, media said the Development Research Centre, an influential think tank linked to China's state council, or cabinet, had recommended eight key areas for reform: finance, taxation, land, state assets, social welfare, innovation, foreign investment and governance.

Those recommendations are likely to form some of the basic agenda for the plenary session.

The official PMI figures will be released on Nov 1 at 9 am (0100 GMT). The final HSBC/Markit PMI will also be released on November 1, at 9:45 am.

(This story was refiled to clarify median in table is 51.2)

(Editing by Kim Coghill)

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