BEIJING, China — CHINA’S worst slump since the global financial crisis leveled out in the latest quarter and retail sales picked up in a sign an economic rebound is taking shape, adding to hopes for a global recovery.

The world’s second-largest economy grew 7.4 per cent from the year before in the three months ending in September, data showed yesterday. That was slower than the second quarter’s 7.6 per cent growth but the decline was much gentler than in earlier quarters. Economists also pointed to quarter-on-quarter growth of 2.2 per cent, the biggest such gain in a year, as a sign of recovery.

“This confirms that the economy is rebounding,” said Dariusz Kowalczyk, senior economist for Credit Agricole CIB in Hong Kong. “There is no room and no need for further major stimulus.”

The Chinese improvement came after unexpectedly strong US housing starts boosted confidence that the world’s biggest economy is mending after five years in the doldrums. The US Commerce Department said Wednesday that builders started construction on new single-family houses and apartments at the fastest pace in more than four years. The US and Chinese numbers are rare good news for the world economy, which has slowed as Europe’s chronic debt crisis worsened and the American economy stagnated.

Beijing has cut interest rates twice since early June and is injecting money into the economy through higher investment by state companies and spending on building subways and other public works. But authorities have avoided a major stimulus after huge spending in response to the 2008 global crisis fuelled inflation and a wasteful building boom.

Retail sales rose 14.4 per cent, accelerating from the first half’s 14.1 per cent growth. Investment in factories and other fixed assets improved, rising 20.5 per cent in the first nine months of the year, up from a 20.2 per cent rate for the first eight months.

“We can see a clear sign of steady economic growth,” said Sheng Laiyun, spokesman for the National Bureau of Statistics. “There is a smaller margin of decline and some major indicators have been growing faster.”

A rebound in Chinese growth would be good news for economies such as Australia, Brazil and African countries that supply its factories with iron ore and other commodities.

The slowdown over the past year and a half is due largely to government curbs imposed to cool an overheated economy and reduce reliance on exports by encouraging more domestic consumption. The slump worsened last year after global demand for Chinese goods plunged unexpectedly.

In line with the government’s hopes, retailing and other service industries aimed at Chinese consumers are growing relatively strongly while manufacturing and heavy industry have been battered by weak global demand and government curbs on construction. The government says stronger activity in services industries has helped to limit job losses.

Pan Wenhao, a 25-year-old wedding photographer in the tourist town of Lijiang in China’s south-west, said his photo studio’s revenues are up 50 per cent compared with this time last year. He said tourism in Lijiang has grown by about 20 per cent from last year.

“I expect my business to be much better in the future and I am confident about that,” Pan said.

But conditions are still tough for manufacturers that had relied mostly on exporting are now trying to sell more to China’s own consumers.

Xie Jun, owner of Dongguan Jincai Real in the southern city of Dongguan, which manufactures headphones, mobile phones and computer accessories, said he is losing 100,000 to 200,000 yuan ($1.4 million to $2.8 million) a month and had to lay off 30 of his 100 employees. He began trying to make more sales in China a few years ago “but the market is limited”.

“We get less business, and even if the factory is running, we cannot make money from that,” Xie said. “Most of the businesspeople I know here have the same problem as me.”

China’s expansion is strong compared with the United States and Japan, where this year’s growth is forecast in low single digits, but the slowdown has been painful for companies that depend on high growth to drive demand for new factories and other goods.

The slump raised the risk of job losses and unrest, posing a challenge to the ruling party as it prepares for a once-a-decade handover of power to younger leaders. The further quarterly decline had been expected after officials including President Hu Jintao warned that growth might slow further before recovering.

Premier Wen Jiabao, the country’s top economic official, said Wednesday growth appeared to be stabilising and expressed confidence China can meet its official targets for the year. Wen gave no growth forecast or a possible time frame for a recovery.

A Chinese recovery could help to boost demand for commodities but otherwise its contribution to global growth will be limited because the country meets much of its demand from its own factories, said Kowalczyk. He said that was reflected in the relatively weak September import growth of just 2.4 per cent, well below the double-digit rates earlier this year.

“The impact on the rest of the world will be more psychological rather than real, major growth,” he said. “But it is good to know the risks from China to the global economy are sharply lower.”