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China GDP Rises 11.3%

BEIJING -- China socks closed mixed Tuesday, with Hong Kong's Hang Seng Index falling 0.1% to 16,044, while the Shanghai Comp added 0.1% to 1684.

China shares saw selling pressure in New York on Monday. eLong (LONG - Get Report) traded down 2.1% to $14.35; Tom Online (TOMO) fell 7.8% to $12.73;and KongZhong (KONG) slipped 7.7% to $6.04.

Beijing reported Tuesday that China's economy grew at a blistering 11.3% in the second quarter -- the fastest growth in over a decade, or since the first quarter of 1995.

The second quarter growth rate, led by exports and fixed-asset investment, stood well above consensus expectations for a 10.4% year on year increase in GDP.

The results also marked an acceleration from first quarter growth of 10.3%.

The economic report bolstered the case for further monetary tightening, which a number of analysts had already speculated was in the offing. It could also increase pressure on Beijing to allow the Chinese currency, the yuan, to appreciate against the dollar. That would have the effect of slowing exports and thus reducing foreign currency inflows into the Chinese economy.

A major source of concern in the new numbers was fixed asset investment, which soared 29.8% year on year in the first half of 2006, up from 27.7% in the first quarter of the year.

In a statement, Zheng Jingping, a spokeman for the National Bureau of Statistics, acknowledged investment in fixed assets as well as lending growth were excessive.

Meanwhile, China's trade surplus fattened to a record $38 billion in the second quarter, compared to $23 billion a year ago.

"I'm not so worried about GDP growth itself, but I am worried about investment growth, credit growth and the trade surplus," said Dong Tao, chief Asia economist for Credit Suisse First Boston. He said a 27-basis-point interest rate hike is "very likely and probably imminent," with an additional 27 point hike possibly in store by year's end.

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