Manufacturing in China rebounded in August, easing fears of a steep correction to the economy, analysts said.

The Purchasing Managers' Index (PMI), a major indicator of economic activity, rose to 51.7 percent in August, up 0.5 percentage points from the July figure, and reversed a three-month fall in the growth rate, the China Federation of Logistics and Purchasing said on Wednesday.

Workers assemble cars in a Chery Auto plant in Anhui, September 1, 2010. China's passenger car sales in August increased 59.26 percent from one year earlier to 977,300 units. [Xinhua]

The index considers 50 to be a benchmark figure and the dividing line between economic expansion and contraction. Anything above 50 indicates expansion.

Economists have been concerned about a slowdown, especially when US growth dropped to 1.6 percent in the second quarter, from a previous estimate of 2.4 percent in July.

Neither is news on the job front in the European Union good with the unemployment rate hitting an almost two-decade high.

A research note from the Industrial Securities said the rebound showed domestic demand is playing an increasingly important role, with the nation relying less on foreign trade for growth.

"China's recovery in the third quarter is helping prevent the world from a double dip recession," the note said.

Zhang Liqun, a researcher at the State Council's Development and Research Center, said he believed the PMI rebound indicated that China's economy was not likely to see a steep correction.

"But attention should be paid to the big rebound in the Input Price Index (IPI), which might increase pressure on companies' costs."

The IPI jumped 10.1 points last month to 60.5.

"Overall, the leading indicators in August point to some near-term strength in manufacturing activity and a rebound in input cost pressures," said Peter Redward, head of Emerging Asia Research at Barclays Capital.

"Looking ahead, we expect a further pickup in the headline PMI in September before moderating in October."