Nov. 2 (Bloomberg) -- Chinese manufacturing data for October showed the nation’s recovery strengthening and export orders climbing, giving policy makers more room to pare stimulus measures in coming months.

Manufacturing expanded at the fastest pace in 18 months, according to a purchasing managers’ index released by HSBC Holdings Plc today and also a government-backed PMI released yesterday. The HSBC index rose to a seasonally adjusted 55.4 from 55 in September, an e-mailed statement showed.

Premier Wen Jiabao’s stimulus package and an unprecedented $1.27 trillion in new loans this year are sustaining China’s rebound after exports slumped because of the global financial crisis. China may tighten monetary policy from the second quarter of next year because of stronger growth and rising consumer prices, Goldman Sachs Group Inc. said Oct. 29.

“The ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months,” said Qu Hongbin, chief China economist at HSBC in Hong Kong.

The Shanghai Composite Index closed 2.7 percent higher, the biggest gain in three weeks, as stocks fell elsewhere in Asia.

China is helping to stoke a global recovery. Reports today showed that manufacturing activity in the euro region expanded for the first time in 17 months in October. In the U.S., the Institute for Supply Management will probably say later today that its index of activity rose to 53 in October from 52.6 in September. That would be the highest since 2006.

General Motors

In the HSBC report, an index of export orders rose to the highest level since June 2007 and job creation was the strongest since the survey began in April 2004. The government-backed PMI also showed gains in demand from overseas.

Surging auto sales boosted manufacturing. Passenger-car purchases exceeded 1 million for the first time in September as General Motors Co., the largest overseas automaker in China, reported that sales doubled.

Billionaire investor George Soros said Oct. 30 in Budapest that China, operating an economic model of “state capitalism,” may emerge as the big winner from the financial crisis, to some extent replacing the American consumer as the motor for the world economy.

“China has been the primary beneficiary of globalization and it has been largely insulated from the financial crisis,” Soros said.

Economic Acceleration

The world’s third-biggest economy may grow 9.5 percent from a year earlier this quarter, Zhang Liqun, of the State Council Development and Research Center, said yesterday. That would be the third straight acceleration and the biggest gain since the second quarter of 2008.

The U.S. economy grew at a 3.5 percent annual rate in the third quarter.

“External demand will provide an additional source of support for growth in the months ahead,” said Brian Jackson, Hong Kong-based strategist for emerging markets at Royal Bank of Canada. “This should provide scope for Beijing to start tightening policy from early 2010 while still keeping growth at relatively high levels.”

Jackson said the key one-year lending rate may climb to 6.39 percent from 5.31 percent by the end of next year. The yuan may rise to 6.5 per dollar after staying close to 6.83 for the past 15 months.

UBS AG says the government may tighten by imposing a lending target of about 7 trillion yuan ($1 trillion) for 2010.

‘Critical’ Phase

China’s cabinet pledged Oct. 21 to continue monetary and fiscal stimulus even after growth exceeded officials’ expectations for the first nine months of the year.

“We are fully aware that the economic recovery is not yet solid due to multiple uncertainties at home and abroad,” Li Dongrong, an assistant governor at the central bank, said in Kuwait yesterday. “China’s economy is at a critical juncture of stabilization and recovery.”

Exports fell 15.2 percent in September from a year earlier, the smallest decline in nine months.

David Cohen, an economist with Action Economics in Singapore, said policy makers are nervous “about whether the export recovery will continue and whether the U.S. can sustain its economic turnaround.” He added that China “won’t want to withdraw the stimulus prematurely.”

Commerce Minister Chen Deming warned Oct. 31 that the global economy may “plunge” if nations withdraw support measures too quickly.

The HSBC index, based on a survey of purchasing executives in more than 400 manufacturing companies, is released by HSBC and Markit Economics.

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Last Updated: November 2, 2009 06:08 EST