China's economy showed signs of softening in July, which could prompt more policy easing and supportive measures to stimulate growth, analysts said on Wednesday.

Industrial output rose 4.8 percent year-on-year in July, down from 6.3 percent in June, marking the weakest pace in 17 years, according to the National Bureau of Statistics.

Retail sales grew 7.6 percent year-on-year to 3.3 trillion yuan ($471 billion) in July, down from 9.8 percent in June. Fixed-asset investment rose 5.7 percent year-on-year in the January to July period, slowing from 5.8 percent in the January to June period.

Speaking at a news conference, NBS spokeswoman Liu Aihua said the economy continued to perform within a reasonable range in July, but is facing growing downward pressure.

"Given the complicated and grave external environment and the mounting downward pressure on the economy at home, the foundation for sustainable and healthy development of the economy still needs to be consolidated," Liu said.

Analysts believe that the weaker-than-expected July data could prompt policymakers in Beijing to step up policy-easing measures and come up with more targeted monetary easing and possible acceleration of local government bond issuance to shore up growth in the second half of the year.

"The data showed that the economy is still weakening and more policy support is still very necessary," said Qu Tianshi, China economist at Bloomberg Economics.

"In terms of fiscal policy, there is still room for more issuance of special bonds by local governments while monetary policy is likely to remain targeted. I expect more liquidity to be injected into the market in the second half of the year to boost confidence," Qu said.

Qu added that the purpose of the supportive measures is to stabilize growth, and the government will avoid using excessive economic stimulus moves, since it needs to maintain enough policy leeway for mid- and long-term goals.

Wang Tao, chief China economist at UBS, said the government will likely provide more liquidity offerings including credit support for smaller and private companies and more financing support for infrastructure investment.

"The government will also push to stabilize manufacturing investment, accelerate certain infrastructure investment and provide more support for employment and unemployment," Wang said in a research note.

But she ruled out the possibility of benchmark interest rate cuts in China this year and said the government will refrain from stimulating the property sector and rolling out any large new fiscal stimulus.

Liu said the negative impact from the trade dispute is controllable, and China's overall growth momentum remains healthy and stable as the economy is increasingly driven by the service sector and domestic consumption, which is supported by a large consumer base and growing family income.

While the weaker growth of retail sales in July was largely driven by slower sales of automobiles, sales in other sectors such as restaurant and entertainment continued to see faster growth in July, she added.

Despite the weaker industrial output in July, the high-tech manufacturing sector expanded by 6.6 percent in July year-on-year, faster than the overall industrial growth rate. Meanwhile, the software and information technology sector continued to be the biggest contributor to the expansion of the service industry, expanding 17.2 percent year-on-year in July, according to the NBS.