July 1 (Bloomberg) -- China’s manufacturing expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world’s third-largest economy.

The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

The Shanghai Composite Index rose above 3000 points for the first time in a year, copper gained and the yen fell as the report added to signs that the global economy may be over the worst of its slump. China’s economy may keep improving in the third and fourth quarters, enabling the nation to meet its 8 percent economic growth target for this year, central bank Governor Zhou Xiaochuan said this week.

“China’s recovery is gathering further momentum,” said Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong. “It has been recovering faster than the market had expected.”

Another PMI, released today by CLSA Asia-Pacific Markets, also showed an expansion.

Copper for delivery in three months rose 2.2 percent on the London Metal Exchange as of 11:15 a.m. in London. Shanghai’s benchmark stock index closed 1.7 percent higher at 3,008.15. Yuan forwards rose for a second day.

U-Shaped Recovery

China’s recovery will be U-shaped, with export growth returning to “normal” by the end of this year or early 2010, central bank adviser Fan Gang said at a forum in Beijing today. The nation is the world’s second-biggest exporter.

The economy will revive “faster or earlier” than elsewhere because China limited asset bubbles, including in housing, Fan said.

An export-order index rose to 51.4 in June from 50.1 in May, expanding for a second month, the government-backed PMI showed. A measure of new orders fell to 55.5 from 56.2.

“Fiscal stimulus projects are gathering steam and everything is going according to plan,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney. “The pickup in export orders is the most encouraging sign for an economy that’s been very externally dependent.”

Output and employment indexes climbed, the survey showed. Input prices jumped as raw-material costs rose.

Growth is likely to continue to improve in June, Zhang Liqun, an economist at the State Council Development and Research Center, said in the statement, describing the economy as in a “preliminary” recovery.

Stimulus, Lending

The outlook for China contrasts with that of Japan, where sentiment among large manufacturers rose less than economists estimated in June, signaling the economy may be slow to recover from its deepest postwar recession. An index of confidence climbed to minus 48 from a record minus 58 in March, the Bank of Japan’s Tankan survey showed today in Tokyo.

In China, the stimulus plan and new loans of 5.84 trillion yuan in the first five months, almost triple lending a year earlier, are driving growth.

“China’s stimulus program is having a demonstrable effect on domestic spending, which has resulted in increased manufacturing activity,” said Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co.

Bank of America Merrill Lynch and JPMorgan raised this week their forecasts for second-quarter economic growth. The former expects 7.6 percent, compared with 7.2 percent previously. JPMorgan increased its forecast to 6.9 percent from 6 percent.

Copper, Steel

Prices of copper, used for autos and construction, have climbed more than 60 percent this year as Chinese buyers boost imports to records to replenish stockpiles.

Higher coking coal prices are adding to evidence that demand for steel is recovering. Fushan International Energy Group Ltd., a producer of steelmaking coal, said last month that it raised prices for the first time since January.

China’s lending boom sparked a 32.9 percent surge in urban fixed-asset investment in the first five months, the fastest growth in five years. New loans in June may exceed 1 trillion yuan, triple lending in the same month a year earlier, China Business News reported June 30.

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

Last Updated: July 1, 2009 06:41 EDT