China's manufacturing sector showed signs of stabilising in August as a key measure of factory activity expanded, easing fears about the world's second largest economy.

HSBC bank's purchasing managers' index (PMI) rose to 50.1 from 47.7 in July - - A reading above 50 shows expansion. For the first time in four months, the HSBC reading has passed that point.

In recent weeks, China has taken measures to boost its economic growth, which has slowed in two quarters.

Today's data comes after an official report of improved growth in industrial output in July.

Gross domestic product was at 7.5% year-over-year growth in the second quarter, down from 7.7% in the first, raising fears that China's economy had entered a period of slow growth.

Commenting on the preliminary PMI reading that covers about  85%–90% of total survey responses each month, Hongbin Qu, chief economist, China & co-head of Asian Economic Research at HSBC said: “China's manufacturing growth has started to stabilise on the back of modest improvements of new business and output. This is mainly driven by the initial filtering through of recent fine-tuning measures and companies’ restocking activities, despite the continuous external weakness. We expect further filtering-through, which is likely to deliver some upside surprises to China's growth in the coming months.”

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