China's August industrial production rose above expectations and at the fastest pace in 17 months, a further sign that the world's second-largest economy is recovering from a slowdown.

According to the National Bureau of Statistics (NBS), China's industrial production rose 10.4% year-on-year in August, beating economists' expectations for a 9.9% growth.

The steel sector contributed the most to the factory output growth, with a 15.6% output expansion. The automobile sector produced 14.8% more units and electricity production improved by 13.4%.

Meanwhile, retail sales were up 13.4%, compared to analysts' view for a growth of 13.2%. In addition, fixed asset investment in the country grew 20.3% year-on-year in the first eight months, beating forecasts for a rise of 20.2%.

"China's August real activity data came in stronger than expected, which will help sustain the market rally due to improving market sentiment towards China's economy," said a note from economists at ANZ Research.

The latest data would bolster investor optimism about Chinese economy, according to the analysts who noted that the country would even surpass the official growth target.

Economic Growth

China's gross domestic product increased by 7.8% in 2012, the worst performance in 13 years, and economists expected a further slowdown after the country posted growth rates of 7.7% and 7.5% in the first and second quarters of 2013, respectively.

Despite the lag, China's authorities were reluctant to announce big stimulus measures, but took steps to boost domestic demand.

The measures include lower taxes on small companies and more railway development. In August, China suspended value-added tax and the turnover tax for businesses generating monthly sales below 20,000 yuan ($3,257; £2,125).

China is also looking to help medium-sized private enterprises with measures including simplifying customs clearance procedures, reducing operational fees and facilitating exports.

As a result, the country's manufacturing and services sectors expanded in August, raising hopes that the country will meet its targeted growth for the full year.

Chinese authorities are targeting a growth rate of 7.5% for 2013 and Premier Li Keqiang earlier confirmed that the country will achieve its full-year economic goals.

Meanwhile, economists from Goldman Sachs lifted their 2013 China growth estimate to 7.6% from 7.4% on the back of recent positive economic indicators. Earlier, Credit Suisse, Deutsche Bank and JPMorgan Chase raised their yearly growth projections for China.