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BEIJING (Reuters) - A pick up in China's factory output and retail sales growth to eight-month highs suggested a revival in the world's second-biggest economy is deepening and boosted the chances for stronger-than-expected exports figures on Monday.
Government figures on Sunday said industrial output rose 10.1 percent in November from a year earlier, the fastest pace since March. Industrial exports growth leapt to a 10-month peak, a breakdown showed.
Consumer inflation bounced off a 33-month trough, but remained at relatively low levels. The combination of tame price pressures and a pick up in economic activity after seven straight quarters of weakening growth will persuade Beijing to stand pat on policy for now, analysts said.
"The Chinese economy is now in a sweet spot and can stay in the sweet spot through the first half of 2013," said Ting Lu, an economist at Bank of America-Merrill Lynch. "Beijing will be happy to sustain the current policy stance."
Analysts forecast the November trade report due later on Monday will show annual exports growth slipped to 9 percent from October's 11.6 percent. They forecast a 2 percent rise in imports, compared with October's 2.4 percent increase.
If the trade data is stronger than expected, markets will become increasingly confident China is snapping out of a protracted slump -- welcome news for a global economy feeling the weight of a recession in the euro zone.
Hurt by wilting export growth and lackluster domestic demand partly owing to measures to cool down a hot property market, growth hit a three-year low of 7.4 percent in the July-September quarter and is poised this year for its weakest expansion since 1999.
The People's Bank of China, the central bank, cut interest rates in both June and July and has lowered banks' reserve requirement ratio (RRR) by 150 basis points since late 2011, freeing an estimated 1.2 trillion yuan ($193 billion) for lending.
Like factory output, retail sales surprised by rising more than expected. The 14.9 percent gain was above forecasts for a 14.6 percent increase. Analysts had expected industrial output to expand by 9.8 percent.
The weekend data also showed fixed asset investment, or spending in such areas as bridges, factories and housing, rose 20.7 percent in the first 11 months of the year over the same year-earlier period. That compared with expectations for a 20.8 percent gain.
The investment data may have been marginally weaker than expected, but Lu of Bank of America-Merrill Lynch said it also contained signs of economic strength.
Annual growth in property investment, which accounts for nearly 15 percent of China's gross domestic product, surged 28.4 percent in November for its fastest pace of expansion this year, he said.
Analysts said the signs that a pick up in activity was broadening suggested the economy's rebound is sustainable.
"We expect such (an economic) recovery to be durable and will at least extend into the first half of next year, though the pace of recovery will remain mild," said Sun Junwei, an economist at HSBC in Beijing.
Zhang Zhiwei, an economist from Nomura, said he expects Chinese economic growth to rebound sharply in the fourth quarter to above 8 percent, with housing investment a key support of the recovery.
That would compare with growth rates of 7.4 percent, 7.6 percent and 8.1 percent in the previous quarters of 2012 - a sharp contrast to the double digit rates of previous years.
China's economy is expected to grow in 2012 by 7.5 percent - in line with a government target - before picking up to expand 8.5 percent in 2013, the Organisation for Economic Co-operation and Development said in a November report.
Sunday's inflation report showed China's consumer price index rose 2 percent in November from a year ago, slightly less than forecasts for a 2.1 percent gain. Vegetable prices soared 11.3 percent.
Although that leaves consumer inflation well below Beijing's 4 percent target for 2012, the central bank has said rising prices represent the biggest risk long term as China makes a transition from a planned to a market-based economy.
This is because as the Chinese economy breaks away from central planning and with wages rising strongly, it may be harder to keep prices in check, a point made by the central bank last month.
Underlining its worries about consumer and property inflation, the central bank has not cut interest rates or the RRR since July. Instead it has used open-market operations to manage cash in the economy to try to target its impact more precisely.
"We expect consumer inflation to not see a big rebound until the first quarter of next year," said Jiang Chao, an analyst at Guotai Junan Securities in Shanghai.
"Therefore, the central bank may stick to its current policy stance and we see little chance of further (policy) loosening towards the year end."
November's data showed price momentum may also be changing in industry.
Factory-gate prices fell 2.2 percent in November from a year earlier. It marked the ninth straight month of decline but was the second month that deflation narrowed after September's 3.6 percent drop, the steepest in nearly three years.
Editing by Neil Fullick