Activity in China's manufacturing sector unexpectedly picked up in September even as factory employment slumped to a five and a half year low, a survey showed on Tuesday.

The HSBC/Markit Flash China Purchasing Managers' Index (PMI) rose to 50.5 in September from August's final reading of 50.2.

Economists polled by Reuters had expected factory growth to stall at 50, the level which separates expansion in activity from contraction, citing a further deterioration in business confidence and the rapidly cooling property market.

But a measure of employment shed more than a point to drop to 46.9, its lowest since February 2009 during the global financial crisis.

A hefty drop in employment could raise alarm bells for the Chinese government, which has indicated it will tolerate slower economic growth as long as employment is not affected.

"The picture is mixed, with new orders and new export orders registering some improvement. Meanwhile, the employment index declined further and disinflationary pressure intensified," said Qu Hongbin, an economist at HSBC.

Finance Minister Lou Jiwei said at the weekend he would not dramatically alter policy because of any one economic indicator, cooling any speculation of swift, aggressive action, but like many economists Qu said he continues to expect China will further relax its monetary policy over time.

Most Asian stock markets and the Australian dollar clawed back some of their early losses after the PMI report, while Shanghai stocks rose.

Despite a raft of stimulus measures earlier this year, the world's second-largest economy has stumbled as a slowdown in the housing market further undermined already softening domestic demand, while exports have faltered.

Worries that China was slipping into a deeper funk heightened this month when data showed factory output grew at the weakest pace in nearly six years in August as growth in other key sectors also cooled.

China's urban unemployment rate was nearly 4.1 percent at the end of June, though many economists believe the real number may be much higher given its army of migrant workers.

But the employment index aside, other measures in the PMI poll fared better, which could keep Beijing's response more modest for now.

Total new orders rose, and new export orders also climbed to their highest level since March 2010.

The overall output level remained flat on the month, while output prices fell to a six-month low.

The final HSBC/Markit manufacturing PMI for the month is due on Sept 30, while the official reading will be released on Oct 1. The HSBC surveys covers more small to medium-sized companies, which are believed to be under far more stress than larger, State-owned firms which the official report tends to focus on.