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 figure is a notch below the 50 point level that separates growth in activity from contraction indicating that manufacturers remain pessimistic, but 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.

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

"The data adds 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.

Tuesday's reading is not the only one to suggest that authorities may open their tool box again; much recent data has missed market expectations.

Weighed by unsteady global demand, stuttering domestic investment and a weak property sector, China's economic growth fell in the first quarter to 7 percent, its lowest level in six years.

The central bank has cut benchmark interest rates three times since November and lowered banks' reserve requirement ratio (RRR) twice since February.

"Interest rate and RRR cuts to date could lift real fixed asset investment by around 2.4 percentage points, but this is not enough to stabilize growth at around 7 percent," Qu Hongbin, chief China economist at HSBC said in a Tuesday report.

Qu expects a 50 basis point interest rate cut and a 250 basis point cut in the RRR in the rest of the year, with intensified fiscal support, more municipal bond issues and mobilization of fiscal funds. As the effects of these easing policy filter through, growth could pick up in coming months, he said.

China's central bank economists are cautiously optimistic, expecting a modest recovery in sequential growth in the second half of the year. The economists lowered their growth forecast to 7 percent for 2015, from previous 7.1 percent, reflecting the headwinds faced by the economy.