China's manufacturing activity shrank for the third straight month in January, data showed Friday, leading analysts to warn of a further slowdown for the world's number two economy.

HSBC's preliminary purchasing managers' index (PMI) stood at 48.8 in January, up only marginally from 48.7 in December, the British banking giant said.

A reading above 50 indicates expansion while a reading below 50 suggests a contraction.

The news come days after the government released data showing the economy grew 9.2 percent last year, well down from the 10.4 percent growth in 2010, while most forecasts put this year's expansion at between just 8.0 percent and 8.5 percent.

However, some analysts believe it could slow even more in the first quarter, with growth even dipping below the 8.0 percent level considered necessary to maintain jobs and contain social unrest.

"The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further," Qu Hongbin, HSBC chief economist for China, said in a statement.

The country's manufacturing activity contracted in November for the first time in 33 months, according to separate figures previously released by the China Federation of Logistics and Purchasing.

"The ongoing slowdown of investment and exports implies more headwinds to growth," Qu said.

China's economy grew 8.9 percent year-on-year in the fourth quarter, the government said this week, slowing from 9.1 percent in the third quarter, due to weaker exports amid turbulence in Europe and the United States.

The country's exports rose 20.3 percent for all of last year, slowing dramatically from growth of 31.3 percent in 2010, to $1.899 trillion.

Urban fixed asset investment -- a measure of government spending on infrastructure -- rose at a slightly slower pace of 23.8 percent last year, figures released this week showed.

Swiss investment bank UBS forecast China's gross domestic product (GDP) growth could slow to less than 8.0 percent in the first quarter.

"We expect exports to weaken substantially and property construction to decelerate further in the next few months, dragging down GDP growth," Hong Kong-based UBS economist Wang Tao said in a report Thursday.

China's property market is slowing after the government took aim at speculation over the last year by banning purchases of second homes, hiking minimum down-payments and introducing property taxes in select cities.

Home prices in nearly three-quarters of China's major cities -- 52 out of 70 tracked by the government -- fell in December from November, the government said this week.

The key to maintaining growth will be credit easing combined with efforts to spur domestic consumption as exports slow, analysts said.

In a bid to boost growth and counter turmoil in the key export markets of Europe and the United States, China in December cut the amount of money banks must hold in reserve for the first time in three years.

"We expect more policy easing to stabilise growth," said Qu of HSBC.

The government is also keen to have domestic consumption play a greater role in powering the economy, allowing consumers to buy up the goods produced by the nation's millions of factories.

"However, demand -- especially domestic demand -- is not strong enough to reduce inventories and it is still affected by the overall economic environment," said Zhang Xinfa, an analyst at Galaxy Securities in Beijing.

Retail sales, a key indicator of consumer spending, rose 17.1 percent in 2011, slightly slower than in 2010, figures releases this week showed.

Chinese stocks were higher after the PMI announcement, as investors still believe that China will not suffer a "hard landing" of its economy, dealers said. The benchmark Shanghai index closed up 1.0 percent.