SHANGHAI (AFP) — China's manufacturing activity expanded in August at its fastest pace in 16 months, two surveys released Tuesday 1 September showed, signalling the world's third largest economy is stabilising.

The Purchasing Managers Index, or PMI, published by the China Federation of Logistics and Purchasing rose for a sixth consecutive month in August to 54.0, up from 53.3 in July.

The HSBC China Manufacturing PMI, an independent reading compiled by British research firm Markit Group Ltd. rose to 55.1 in August from 52.8 in July.

A reading above 50 means the sector is expanding, while a reading below 50 indicates an overall decline.

"August PMI's continued to increase slightly, indicating China's economy will maintain the upward momentum," Zhang Liqun, an economist at the State Council's Development Research Centre, said in a statement from the federation.

Of 20 industries surveyed, only the textile and pharmaceutical industries contracted last month, the federation said.

More than a fifth of managers at 727 businesses interviewed reported a rise in imports, including raw materials, after five consecutive months of decline, it added.

"The domestic demand driving China's economic recovery is further strengthening," it said.

Exports are recovering but still face uncertainty, it said. The August new export order index was 52.1, flat from the previous month. Although the index has been above 50 for four months, growth has been weakening.

"The forward-looking components of PMI indicate continued expansion in both domestic and export demand," Jing Ulrich, J.P. Morgan's managing director and chairman for China equities, said in a research note.

China's economy expanded by 7.9 percent in the second quarter, up from 6.1 percent in the first quarter, mainly as a result of massive government spending amid the global downturn.

Beijing announced a four-trillion-yuan (585-billion-dollar) stimulus package last year in a bid to prop up growth in the country by boosting investment in infrastructure and other government-backed projects.

"Beijing will continue to withdraw some of the stimulus that has done its job -- lending and infrastructure spending -- and is no longer needed. We will not see any measures designed to slow economic growth," Andy Rothman, a Shanghai-based economist at the CLSA brokerage, said in a note.

"In other words, no 'tightening'."

The PMI sank to a record low of 38.8 in November as the global financial crisis took hold, but improved continuously in the following months, moving above 50 in March.

Manufacturing accounted for more than 40 percent of the economy last year in China, which has been hit hard by evaporating demand for its products in key export markets such as the United States and Europe.

By D'Arcy Doran