The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index, or PMI, rose to 54.7 in October from 53.8 September and 51.7 in August. Monthly readings have stayed above 50, the benchmark for expansion, for 20 straight months, it said.

China's economic growth slowed to 9.6 percent in July-September over a year earlier, down from the previous quarter's 10.3 percent. But the survey, an indicator of future trends, suggests the economy is on track for continued stable growth, the federation said in a notice on its website.

The improved manufacturing figures propelled Asian stock markets higher with the Shanghai Composite up 2 percent and South Korea's Kospi ahead by 1. percent.

The federation said relatively robust reading for October showed strong growth in new orders for equipment, including transportation and general equipment thanks to strong stimulus spending.

China's spending on new projects rose 24.5 percent in the first nine months of the year to 13.9 trillion yuan ($2.1 trillion), more than twice the amount of total investment in new projects in the same periods of 2007-2008.

A push to build more "affordable housing" in line with government policy, and other moves to crack down on hoarding of land prompted many developers to begin construction in the third quarter.

The jump in spending prompted the central bank to raise key interest rates last week to help counter inflation.

A competing index, the HSBC China Manufacturing PMI -- a seasonally adjusted index designed to measure the performance of the manufacturing economy -- rose to a six month high of 54.8 in October from 52.9 in September.

Total new orders outpaced new export orders, suggesting the expansion is mainly in the domestic market, it said.

The logistics federation's report said that industries with growing manufacturing activity in October included non-ferrous metals, printing, metal products and paper making, the federation said.

The survey's measure for new export orders remained flat, reflecting weakness in overseas economies.

"The long term may carry greater liquidity risks, with financial risks linked to huge loans coming due for U.S. banks," it said.

The surveys also warned of risks from surging prices for key raw materials, such as coal, cotton, grain, steel and rubber.