The World Bank on Tuesday urged China to "rebalance" its economy with moves to boost domestic consumption in order to rein in the country's yawning trade surplus.

The call came in the latest Quarterly Update on China in which it raised its 2007 growth forecast for China's economy to 9.6 percent from 9.3 percent.

Describing "China's key economic challenge", the report said the growing trade surplus would aggravate the country's economic imbalance towards an over-reliance on foreign trade and investment.

The report outlined rebalancing measures including shifting production from industry towards services, more reliance on domestic demand, more "equally shared growth" and more environmentally sustainable growth.

"Besides being desirable in their own right, measures that support rebalancing are also likely to address the surging trade surplus, China's main short-term challenge," said the report.

The Washington-based organization stood by its previous projections that China's gross domestic product (GDP) would grow 10.4 percent this year.

It said China's GDP growth slowed to 10.4 percent in the third quarter, from 11.3 percent in the second quarter, as economic controls tightened to reduce investment growth.

The report pointed out that exports continued to outpace imports by a large margin, so slowing domestic demand was partly offset by rising contributions of trade to GDP growth, while the current account surplus reached a new high.

In its latest Mid-year Update on East Asia, the World Bank predicted that China's current account will post a surplus of 223 billion U.S. dollars this year, a drastic rise from last year's 160 billion U.S. dollars.

Despite the challenge of the surplus, it said macroeconomic prospects remained "favorable" for growth. Prospects for a soft landing of the world economy were good, although risks remained.

The report said China was relatively well-placed to deal with a mild global slowdown, which would slow overall activity and reduce the current account surplus. Domestically, underlying conditions remained favorable to continued rapid growth.

But it also warned that upside risks remained as investment growth may rebound with abundant liquidity in the banking system and higher profit growth.