Chinese factory activity contracted for the fourth straight month in June but at a slower rate as signs of stabilization emerged, according to a report Tuesday.

The preliminary version of HSBC purchasing managers' index rose to a three-month high of 49.6 for the month from 49.2 in May. The monthly survey of factory purchasing managers is based on a 100-point scale with numbers above 50 indicating expansion.

Manufacturing output held steady as new orders and purchasing activity in China's massive manufacturing sector rose slightly from the month before.

"On the other hand, manufacturers continued to cut their staff numbers, with the latest reduction the sharpest in over six years," said Annabel Fiddes, an economist at Markit, which conducted the survey.

The results indicate that momentum in China's factories is slowing in the current quarter, which Fiddes said "suggests that authorities in Beijing may step up efforts to stimulate growth and job creation" in the world's second-biggest economy for the second half of the year.

China's economic growth fell in the first quarter to 7 percent, the slowest pace since the end of the global financial crisis in 2009. Policymakers have already launched several rounds of stimulus, including cutting interest rates three times in six months and slashing bank reserve requirement ratios to free up money for lending.