China's industrial output growth hit a eight-month high on surging exports and retail sales, official statistics showed Thursday.

Industrial production rose 18.5 percent year-on-year in January and February, according to the National Bureau of Statistics (NBS). That represented a 3.8 percentage points increase over that in December.

The combined figure for the first two month was given to eliminate distortions from the timing of China's biggest festival,the lunar new year which fell in the middle of Feburary this year and straddled both months last year.

Among the industries, the black metal industry witnessed the sharpest rise of 28.5 percent while the textile output grew 17.8 percent and the output of telecomunications, computers and other electronic devices increased 17.7 percent.

The country produced 1.38 million automobiles in the first two months, an increase of 21.5 percent over the same period last year, NBS said. The output of saloon cars surged 29 percent to hit 750,000 as the middle class is expanding in the world's fastest growing major economy.

The production figure came after the customs said Tuesday that the country's exports had their biggest jump in 12 years in February. 

Exports gained 52 percent in February to hit US82.1 billion, according to the General Administration of Customs.

Retail sales also saw a double-digit grew in January and February, topping 1.45 trillion yuan after a 14.7 percent growth.

China's Gross Domestic Product grew 10.7 percent in 2006, the fastest in 11 years. Premier Wen Jiabao lowered the growth target for this year to 8 percent, but many economists expect the actual growth turns out to be higher.

To curb lending and investment, the central bank in February ordered banks to set aside larger reserves for the fifth time in eight months. Currently, the banks must put 10 percent of the deposits in the central bank.

However, that failed to dampen the commercial banks' impulse to offer loans. The yuan-denominated loans grew 41.38 billion yuan in February, a year-on-year increase of 26.47 billion, the central bank said Monday.

That was partly driven by rocketing cash holdings of the banks. February's household deposits grew 58.38 billion yuan year-on-year to hit 99.12 billion yuan, according to the central bank.

The credit expansion may force the central bank to raise the reserve requirements ratio again, or even resort to an interest rate hike.