HONG KONG -- China's manufacturing purchasing manager's index rebounded to a three-month high of 49.3 in July from 48.2 in June, the ninth consecutive month below 50, according to the latest reading by HSBC.

July's reading showed a rise in output thanks to a more modest contraction of new business inflows. The output subindex rose to a five-month high of 50.9, marking the first reading above the break-even level in five months.

The new orders sub-index increased to a three-month high of 48.7 in July from 47.2 in June, but contracted for the ninth straight month. The new export orders reading was relatively weaker than total new orders, at 46.7 in July compared with 45.7 in June.

A reading above 50 suggests expansion, while a reading below 50 indicates contraction.

The report said July's finished goods inventory continued to build for the third month in a row for lack of new businesses. This kept the new orders minus finished goods inventory ratio firmly in contraction at -2 in July. The quantity of purchases and stocks of purchases were both reduced at a marginal pace at 49.3 and 49.8 respectively.

The lack of new business and destocking pressures continued to weigh on employment, whose sub-index worsened to 47.7, its lowest level since March 2009 and the fifth consecutive reading of below 50.

Prices contracted for the third month in a row, reflecting still weak demand. Input prices sub-index remained largely unchanged at 41.9 in July, compared to 41.5 in June, while output prices remained subdued at 41.3 in July compared with 40.5 in June.

Separately, the official manufacturing PMI moderated to an eight-month low of 50.1 in July, below market expectation of 50.5 and 50.2 in June.

Details suggest a faster contraction of new exports orders and still lackluster domestic demand, given the continuous sharp fall of input prices, the weaker reading of imports and the second consecutive contraction in employment.

Qu Hongbin, chief economist at HSBC China, said in the report that the final manufacturing PMI confirms only modest improvement of manufacturing conditions thanks to the initial effect of the earlier easing measures.

"The reversal of China's growth slowdown is taking its time to unfold. Downside pressures persist with external markets still deteriorating and labor market conditions slackening," he said.

"We still expect Beijing to step up policy easing in the coming months to support growth and employment," he added.