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China's official factory activity skidded to a three-year low point in January, adding to further gloom about the state of the world's second-largest economy.

The government-compiled January manufacturing purchasing manager's index (PMI) came in at 49.4, slightly missing Reuters consensus estimates for a 49.6 reading and ticking down from December's 49.7 figure. It was the weakest result since 2012 and marked the sixth straight month in contraction territory.

The mood was worsened by a private survey by Caixin and Markit that showed January manufacturing activity shrinking for the eleventh straight month. Caixin's survey, which tracks smaller firms than the official indicator, came in at 48.4, compared to December's reading of 48.2.

A score below 50 indicates a contraction in the sector, while one above 50 means expansion.

"Chinese manufacturers signaled a modest deterioration in operating conditions at the start of 2016, with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months," Markit said in a statement.

But helping to offset the disappointment was a separate survey also released on Monday, that showed growth in the Chinese services sector had held above the key 50 level. The January official non-manufacturing purchasing manager's index came in at 53.5, versus 54.4 in December.

The Australian dollar, considered a proxy for China's economy, edged down 0.4 percent following data release, while Asian equity markets were mixed. China's benchmark Shanghai composite fell nearly 1 percent in early trade while Japan's Nikkei led the region's gains by more than 1 percent.

As Beijing attempts to reorient its economy away from investment-fueled industrial growth and towards domestic consumption, services such as real estate and health care are becoming important indicators for policymakers; the services sector already accounts for half of Chinese gross domestic product. This new focus has led many strategists to question the value of manufacturing PMIs as lead economic indicators.

"China has been a two-track economy for the past five years. We have services growing very nicely and the lower track of the economy, which is the industrial sector, remains in a difficult position and it's not going to get out of it quickly," explained Erwin Sanft, head of China strategy at Macquarie.

Cutting over-capacity in heavy industries was key to resolving the current slump, Sanft warned.

"There's a realization that for a lot of these industries, there has to be a big downsizing," he said. "Rather than avoiding that issue, plans are now being made as to how workers can be laid off and looked after. We expect there'll be some funding from the central government."

Monday's reports were the latest catalyst pushing global investor sentiment deeper into risk-off mode, following a month of wild market swings amid sharp losses in crude oil prices and protracted worries about a Chinese hard landing. Earlier this month, data showed China's economy grew 6.8 percent in the fourth quarter of 2015 compared to the same period a year earlier and 6.9 percent for the full year, hitting a 25-year low.

"More than just concerns of a slowdown, market reforms in China have caused sharp falls in its stock and currency markets, resulting in some clumsy and disappointing policy moves which has shaken confidence in the ability of Chinese policy makers," Vasu Menon, vice president of wealth management at OCBC Bank, said.

"It will take time for China to restore confidence in its markets, currency and economy and uncertainty could cause significant volatility in the year ahead."

Monday's data will likely give the People's Bank of China (PBOC) more ammunition to ease monetary policy further, analysts argued.

ING has forecast two 25 basis point interest rate cuts by mid-year, noting that further injections into money markets via reverse repo rates were likely as the PBOC increased the frequency of its open market operations to daily from twice a week in order to meet demand ahead of the week-long Lunar New Year holiday, which begins next week.