China's factories grew more than expected in February as new export orders for big firms bounced back, according to a government purchasing managers index (PMI). The official PMI rose to 51.0, above expectations of 50.7 and higher than 50.5 in January.

Private sector PMIs on Thursday pointed to some improvements in factory activity in China, India and Taiwan, although in China it also showed smaller companies lagging a rebound at larger companies.

HSBC's China PMI stood at 49.6, a shade higher than January's reading of 48.8, but still under the 50-point threshold demarcating expansion from contraction.

The manufacturing surveys, the first leads on factory activity in the region, offered tentative signs of a recovery from the slump in the final months of 2011 caused by faltering external demand and fragile business and consumer sentiment. However, the economic picture was far from complete.

"We're in that familiar period where business conditions indicators are improving while the hard data is yet to reflect that," said Robert Prior-Wandesforde, economist at Credit Suisse in Singapore.

Coming barely hours after Federal Reserve Chairman Ben Bernanke's testimony offered a tempered view of the U.S. economy, the PMIs provided markets with some respite. The Australian dollar rallied, aided by robust domestic economic data, as did stock markets in Asia.

Data due later on Thursday is expected to show the euro zone's factory activity contracted in February for a seventh straight month. A similar report on U.S. factory activity is expected to show manufacturing picked up in February.

Other PMIs released showed Spanish factories contracting for the tenth straight month, Poland on the dividing mark of 50, and growth in Russia moderating.

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The HSBC PMI for Taiwan, one of Asia's most open economies which sits at the centre of many global technology chains, was starkly optimistic. The index rose to 52.7, marking the first expansion in factory output since May 2011, led by export orders.

India's manufacturing sector expansion eased back from its strongest pace in eight months for a PMI of 56.6 in February compared with 57.5 in January. However, new orders touched a 10-month high.

Like in many countries though, official Indian data doesn't paint such a rosy picture. Growth in gross domestic product dropped to its slowest pace in nearly 3 years in the final quarter of 2011, with manufacturing and mining at the fore of the slowdown, figures showed on Wednesday.

South Korean data on Thursday showed exports for January and February combined grew just 6.8 percent, weak enough to underscore grim prospects for demand from debt-ridden Europe and the anemic nature of U.S. orders.

DIVERGENCES

The global economy has been difficult to read so far this year. Business sentiment indicators have improved, even if some PMIs have suggested continued contraction in activity.

Corporate earnings and forecasts have been a mixed bag.

The world's largest heavy machinery maker, Caterpillar Inc (CAT.N), said on Wednesday it expects record sales and profit this year as economic activity in China and the United States picks up.

"In 2012 we're going to have another year of record sales and profit," Chief Executive Doug Oberhelman said, adding he sees revenue rising between 10 and 20 percent this year.

That said, some of Asia's big exporters have seen a slow start to 2012. Taiwan's UMC (2303.TW), the world's No.2 contract chipmaker, saw January sales fall 15.5 percent from a year earlier. Acer Inc (2353.TW), the world's No.4 PC vendor by sales, reported an 18.5 percent drop in January sales from a year earlier.

"Our base case is that while growth is unlikely to charge ahead in the coming months, we have hit a bottom in the business cycle," analysts at RBS said in a note.

The dual PMI surveys for China also revealed a divergence in export orders, with the government's new export orders sub-index rising to 51.1 in February, the first expansion in four months and the highest reading since May 2011.

But the HSBC PMI export sub-index slid to an eight-month trough of 47.5, suggesting orders were shrinking.

It is not uncommon for the two to diverge. They use differing survey samples and the government survey is only partially seasonally adjusted -- a vital distinction given the Chinese Lunar New Year holiday disruption to production cycles at the start of this year.

"In the past six years, the month after Chinese New Year always saw a rise of PMI readings. Therefore, PMI data in January and February should be taken with a grain of salt," Ting Lu, China economist with Bank of America/Merrill Lynch in Hong Kong wrote in a note to clients.

China's economy posted its weakest growth in 2-1/2 years in the December quarter. Growth for 2012 is widely expected to the weakest in a decade.

The twin data sets suggest the vast Chinese factory sector is slowly edging out of a trough and a hard economic landing can be avoided. However, that has yet to be secured, signaling to analysts that it is too early to think the government will ease back from providing the economy with modest support.

"Deteriorating external demand is adding more downside risks to growth in the absence of a strong comeback in domestic demand," said Qu Hongbin, HSBC's China economist.

"We expect the People's Bank of China to step up policy easing efforts as inflation pressures recede."

(Additional reporting by Aileen Wang and Koh Gui Qing in Beijing; Jonathan Standing in Taipei; Writing by Nick Edwards and Vidya Ranganathan; Editing by Neil Fullick)

• A Permanent Economic Emergency