As exports and home sales continue to slide, no thanks to the continuing European debt crisis and stringent real estate policies at the home front, China's manufacturing has been forecast to contract for a second month in December.

A preliminary reading of HSBC Holdings PLC's China purchasing managers' index (PMI) released Thursday (2:30GMT) showed the activities in the country's mainland's factories narrowly made a a difference of 2 basis points to reach 49.0 in December.

This is still below the threshold of 50, the point of contraction and expansion. November's official number was 47.7.

"The pace of slowdown stabilized in December but the growth momentum remains weak with additional downside risks from exports and the property market not yet fully filtering through," Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said in a statement.

"With inflation quickly shifting to disinflation, the Chinese government can and should make more aggressive easing on both fiscal and monetary fronts to stabilize growth and jobs," he added.

"A reading between 47.7 to 48.00 and 50 could be taken as a positive sign for the market as it shows that the sector is still a bit resilient to the fallout from Europe. The Australian Dollar may see a bit of a bounce after suffering sharp falls recently," Nick Nasad, Chief Market Analyst at FXTimes, said.

"A reading below 47.7 would be a negative for risk sentiment, for equities and commodities, as well as for the AUD."

China's December manufacturing data stands as an important guideline to gauge whether the economic outlook for China will continue to deteriorate. A further soft data from China could result in further sell-offs in equities and commodities.

The preliminary reading, also called the flash PMI figure, is based on the responses of some 85 per cent to 90 per cent of the total respondents to HSBC's PMI survey each month, and is issued about one week before the final PMI reading.

China is expected to release the official December PMI reading on Dec. 30.