An initial gauge of China's manufacturing activity rose to the highest level in three months in October, bolstering hope that a recovery might be taking shape after a slowdown in the world's No. 2 economy.

HSBC's Flash China Purchasing Managers' Index rose to 49.1, an increase from 47.8 in September, although still in the contraction range, the bank said in a statement.

"October's flash PMI continues to recover for the second month due to gradual improvement in new orders and helped by filtering-through of earlier easing measures," said Qu Hongbin, chief economist for HSBC China.

The flash reading showed contraction for the 12th straight month, and China's official reading stood at 47.9 in September.

"External challenges and pressures on job markets are lingering, calling for continuation of policy easing in the coming months to secure a firmer growth recovery," Qu added.

The HSBC figure is based on surveys of more than 420 domestic companies and is slanted toward private and export-oriented manufacturers.

Fan Guilong, an analyst of Huarong Securities, said China's economy is clearly showing signs of bottoming out and may post better-than-expected macro-economic figures in the fourth quarter. "We expect GDP to grow 7.7 percent in the quarter as economic situation is showing gradual signs of stabilizing," Fan said.

China's GDP in the three months ended on September 30 expanded 7.4 percent from the same period a year earlier.

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