BEIJING, June 23 -- China's factories did better last month, a preliminary HSBC survey showed on Tuesday, though overall manufacturing activity still contracted slightly.

The HSBC flash manufacturing purchasing managers' index (PMI) recovered to 49.6 in June from May's final reading of 49.2, beating market forecast of 49.4.

The data is a notch below the 50-point level that separates a monthly growth in activity from a contraction, indicating that manufacturers still experienced a slight contraction in business.

Those hoping for signs of stabilization in China's flagging economy may find some relief in Tuesday's report.

A breakdown of the survey results showed the sub-indices of output, new orders and quantity of purchases all improved in June. The index of new orders rose above the 50-point mark for the first time in four months.

However, the sub-index of employment showed manufacturers continued to cut their staff, with the latest reduction the sharpest in over six years, indicating companies have relatively muted growth expectations as demand conditions both at home and abroad remain subdued, Markit economist Annabel Fiddes said.

"The data add to evidence that the sector has lost growth momentum in the second quarter as a whole, and suggests that the authorities may step up their efforts to stimulate growth and job creation in the second half of the year," Fiddes said.