Fixed-asset investment in towns and cities climbed to 1.8 trillion yuan ($224 billion) through April, the National Bureau of Statistics said in a statement today. The increase compares with 29.8 percent in the first quarter and 25.7 percent in the same period last year.

China, which raised lending rates three weeks ago, may take more steps to cool a lending-driven investment boom that the World Bank says could cause the world's fastest-growing major economy to slow abruptly. The government says manufacturing capacity is growing too quickly in some industries, leading to sliding prices and corporate profits.

"The recent interest rate hike is not enough to cool down investment," said Shuji Tonouchi, an economist at Mitsubishi UFJ Securities in Tokyo. "The government also needs to more closely regulate overheated sectors and provide window guidance to banks about lending."

The gain in investment compares with the 29.1 percent median forecast in a Bloomberg News survey of 20 economists. The central bank on April 28 raised its one-year lending rate by 27 basis points to 5.85 percent, the first increase in 19 months.

Economists including Tai Hui at Standard Chartered Bank and Paul Cavey at Macquarie Securities expect the People's Bank of China to raise the percentage of deposits banks must set aside as reserves, known as the required deposit reserve ratio. Such a move would help push market interest rates higher, making it more expensive to borrow, they said.

Credit Curbs Loosened

China's economy expanded by about 10 percent annually over the past three years and maintained that pace in the first quarter, powered by investment and a widening trade surplus. Investment growth has accelerated even as the government sought to limit expansion in industries such as steel, real estate and cement.

Credit curbs imposed in 2003 and 2004 were loosened last year to prevent companies in the industries targeted from running out of cash and to cushion the economy from the impact of the July 21 revaluation of China's currency, the yuan.

The rebound in investment has been driven by surging bank lending. Money supply jumped 18.9 percent in April and lending more than doubled as a swelling trade surplus and rising investment from overseas boosted currency inflows, the central bank said May 15.

New yuan lending in the first four months amounted to almost two-thirds of the bank's target for the full year.

Real Estate, Telecommunications

Investment in real estate development, which accounts for almost a quarter of total investment, rose 21.3 percent to 413.1 billion yuan in the first four months from a year earlier. The gain compares with 20.2 percent in the first quarter and 25.9 percent growth year-earlier period.

Manufacturing investment rose 32.3 percent in the first four months to 781 billion yuan, matching first quarter gains while slowing from 38 percent for all of 2005. Investment in services including telecommunications and education jumped 27.8 percent to 1 trillion yuan, the statement said.

A financial system flush with money has helped keep market interest rates at near record lows, encouraging companies to borrow by issuing commercial bills. Banks ramped up lending in the year's first months to reap early profits, the central bank said in a separate report this week.

The interest rate that banks charge each other for seven-day loans using bonds as collateral closed at 1.6 percent yesterday, the lowest in a month. The rate stood at 2.85 percent on January 25.

(For more biz stories, please visit Industry Updates)