Growth in China's manufacturing sector dropped in October, suggesting the world's second-largest economy continued its gradual slowdown in response to government measures to cool growth and temper high inflation.

The Purchasing Managers' Index plunged to 50.4 in October from 51.2 in September, reported the China Federation of Logistics and Purchasing.

In manufacturing activity, a reading above 50 indicates expansion, below 50 shows a contraction. China's PMI had not fallen below 50 since February 2009 amid the height of the global fiscal disaster.

The actual figure was way lower than what economists and experts had expected as the index of export orders came after two consecutive months of increase.

The PMI reading "is a reflection of slowing momentum in the economy" and exports may "slow sharply in coming months," Wang Tao, a Hong Kong-based economist, told Bloomberg News. "Policy will ease more visibly in the first quarter of 2012."

China increased interest rates and reserve ratios for banks a couple of times since the start of the year as well as exercised administrative measures, such as limiting housing purchases and dictating banks on which industries to lend to.

Most analysts believe inflation peaked in July, when the annual consumer price index reached 6.5 per cent from a year ago. Price increases are expected to continue to moderate, following CPI readings of 6.2 and 6.1 per cent in August and September, respectively.

Analysts also said the PMI usually declines by an average of 0.9 percentage points from September to October.

A sub-index of the PMI showed new orders in October slipped to 50.5 from 51.3 in September, while new export orders contracted, tumbling to 48.6 from 50.9 in September.

Premier Wen Jiabao said last week that economic policies will be "fine-tuned" as needed.

China's economy grew 10.4 percent in 2010 and 9.4 percent in the first nine months of this year.