Ticket shop, Tokyo
Japanese business sentiment retreated in the third quarter Reuters

Asian stocks began the fourth quarter in positive territory as China reported better-than-expected factory activity in September. The government's official manufacturing purchasing managers' index edged up to 49.8 from 49.7 in August, though still staying below the 50-mark that separates expansion from contraction. Analysts had forecast a score of 49.6.

However, a private survey over the same period by Caixin and Markit showed China's factory PMI slid to a six-and-a-half year low of 47.2 from 47.3. "The industry has reached a crucial stage in its structural transformation," said He Fan, chief economist at Caixin. "Tepid demand is a main factor behind the oversupply of manufacturing and why it has not recovered."

Chinese markets are closed until 7 October for public holidays.

Tankan survey disappoints

The Nikkei benchmark index was up by 2.3% to 17,778.85 points at mid-day despite a closely watched business survey disappointing analysts. The Bank of Japan's (BOJ) quarterly Tankan survey showed business sentiment among major manufacturers fell three points to 12 in the third quarter, just shy of forecasts for a score of 13.

Stock quotation board, Tokyo
Japanese shares started October in positive territory Reuters

The survey comes a day after data showed Japanese industrial output unexpectedly dropped 0.5% from a month ago in August – the second consecutive monthly drop. Analysts say Japan could plunge into a technical recession in the third quarter after its gross domestic product shrank in the April to June period.

"Should this come to pass, the Japanese government will campaign much harder for the BOJ to step up its monetary easing," said Bernard Aw, market analyst at trading firm IG in Singapore. "The markets will also amplify their calls for BOJ to do more."

South Korea's Kospi benchmark was up 1.1% to 1,983.90 after data showed industrial production rose 0.4% from the previous month in August, belying expectations for a 1% fall. In Australia, the S&P/ASX 200 advanced 1.8% to 5,112 points. Elsewhere in the region, India's Sensex index was up 0.8% at 26,374.84 in early trading.