China’s manufacturing strengthened more than anticipated this month, a sign that the nation’s recovery is extending into the fourth quarter.

The preliminary 50.9 reading for a Purchasing Managers’ Index released Thursday by HSBC Holdings Plc and Markit Economics compared with a 50.4 median estimate from analysts surveyed by Bloomberg News. Readings above 50 indicate expansion.

Premier Li Keqiang has presided over the biggest home-price gains in major Chinese cities in more than two years as well as a rebound in non-bank financing since July, suggesting he’s keeping some policies loose to support growth after the first half’s slowdown. Li said this week that the nation is on track to achieve its economic goals in 2013 after expansion accelerated to 7.8 percent last quarter from a year earlier. 

“This momentum is likely to continue in the coming months, creating favorable conditions for speeding up structural reforms,” Qu Hongbin, HSBC chief China economist in Hong Kong, said in a statement.

Last month’s final level of 50.2 differed from an initial 51.2, the biggest gap since HSBC began giving advance figures in 2011.

The benchmark Shanghai Composite Index of stocks pared losses and was little changed at 9:53 a.m. local time, while the yuan strengthened against the dollar and the Australian dollar gained.

Officials are wrestling with controlling risks from shadow banking and local-government debt while keeping growth above a “bottom line” of 7 percent. The government has rolled out fiscal stimulus, including spending on railways and replacing shantytowns, to support expansion without cutting interest rates or banks’ reserve requirements.

China Wednesday allowed more local governments to issue short-term debt to help pay off maturing bonds and loans, a move that may help to contain risks from a surge in borrowing, the Wall Street Journal reported Thursday, citing a person with direct knowledge of the matter that it didn’t identify.

China’s one-year interest-rate swap rose Thursday by the most in two months after the People’s Bank of China refrained from injecting funds via reverse-repurchase agreements for a third straight auction.

The final reading of the HSBC-Markit manufacturing PMI will be released on Nov. 1. The National Bureau of Statistics publishes the government’s manufacturing PMI, with a bigger sample size, on the same day.

The Flash PMI from HSBC and Markit is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

Thursday’s reading shows that China is still on track for “decent growth,” Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, said in a Bloomberg Television interview. “China is holding up pretty well” compared to other countries amid talk that the U.S. Federal Reserve will slow its monetary stimulus, he said.

“When financial conditions are loose, everybody is doing fine and everybody is growing; but then, when the Fed starts to talk about tapering, you see who is vulnerable to these things ― China is not,” Kuijs said.

Analysts see growth slipping to 7.6 percent this quarter and 7.4 percent in 2014, based on median estimates in a Bloomberg survey this month, compared with the government’s 7.5 percent goal for 2013.

Home prices in China’s four major cities jumped the most since January 2011, a government report showed earlier this week, heightening concerns a bubble is forming as the government refrains from introducing more property curbs that would hinder economic growth.

Data earlier this month showed exports fell 0.3 percent in September from a year earlier, a decline that reflected limits on global demand as well as distortions caused by past fake invoicing. Industrial production rose 10.2 percent, down from August’s 10.4 percent pace, the first slowdown in three months.

ZTE Corp., the third-largest smartphone vendor in China, said this week that it will probably turn a full-year profit in 2013, after a loss last year, following a 241.6 million yuan ($40 million) profit in the third quarter. (Bloomberg)