Manufacturing activity in China improved in March after expanding at its slowest pace in four months in February, HSBC said on Thursday, lifting hopes for a pick-up in the world's number-two economy. The British banking giant's preliminary purchasing managers' index (PMI) came in at 51.7 for the month, from a final 50.4 in February, which was the lowest reading since October, it said in a statement. PMI is a widely watched barometer of the health of China's economy, with a reading above 50 indicating expansion while anything below points to contraction. The uptick in March PMI was bolstered by stronger new orders and production growth, Qu Hongbin, a Hong Kong-based economist with HSBC, said in the statement. "This implies that the Chinese economy is still on track for gradual growth recovery," he said. Both input and output price indexes decreased this month, the survey showed, indicating inflation was not yet an imminent concern. "Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery," he said. China's economy expanded 7.8 percent in 2012, its slowest pace for 13 years, in the face of weakness at home and in key overseas markets. But growth accelerated in the final three months of last year to 7.9 percent, snapping seven straight quarters of weakening expansion. However, the latest indicators from the government point to a slowdown in industrial production growth and retail sales last month, suggesting a budding recovery may be fragile. China's inflation hit a 10-month high of 3.2 percent in February, up from January's 2.0 percent, data also showed, as holiday season spending and rapid credit growth accelerated price rises.