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HSBC China Flash PMI Hits 13-month High

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The HSBC China Flash Purchasing managers Index, a widely followed indicator of future economic activity in China, came in above the 50 level, the dividing line between expansion and contraction, for the first time since October 2011.

“An uptick in key economic activity indicators in October, following encouraging signs in September, cemented the view of many analysts and investors that a rebound in the world's second largest economy gathered momentum as it entered the fourth quarter, thanks to a raft of pro-growth policies rolled out by the government over recent months,” Reuters wrote.

"This confirms that the economic recovery continues to gain momentum towards the year-end," Qu Hongbin, HSBC's Chief China economist, said. "However, it is still the early stage of recovery and global economic growth remains fragile. This calls for a continuation of policy easing to strengthen the recovery."

As a result of increased optimism about a recovery of economic activity in China, Bloomberg reports that most analysts expect that there will be no further easing of reserve requirements by the People's Bank of China, the nation's central bank.

Although the outlook for the fourth quarter in China is rosier, analysts warn not to make too much of one month's numbers. China's economy is still vulnerable to declining demand in its major export markets, such as the United States. If there is no agreement on avoiding the fiscal cliff and the U.S. economy slows, China would also feel the effect.

Shares in China were higher following the news. In the U.S., the iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI) closed up 2.4% on Friday.

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