Workers work at a textile factory in Zhengzhou, Central China's Henan Province in this file photo. [newsphoto]

China's expansion of industrial production held above 17 percent for a second month, adding to pressure on the government to raise interest rates to cool investment in the world's fastest-growing major economy.

Output rose 17.4 percent in April after climbing 17.6 percent in March, the statistics bureau said Wednesday. That was close to the 17.5 percent median estimate of 18 economists surveyed by Bloomberg News.

Premier Wen Jiabao Wednesday expressed concern at "excessive liquidity" as cash from an export boom threatens to spur a stock market bubble and overcapacity in manufacturing. A sudden slowdown in an economy that expanded 11.1 percent in the first quarter may lead to idle factories, unemployment and bad loans.

"Strong industrial production figures may suggest that fixed-asset investment is picking up and that's not what the government wants," said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. "We can expect another interest rate increase and more bank reserve ratio hikes if investment takes off again."

Fixed-asset investment in urban areas probably jumped 25.3 percent in the first four months from a year earlier, according to a Bloomberg News survey of economists. The government will release figures at 10 a.m. Thursday.

Spending on factories and property rose 29.6 percent in the first four months of last year. It slowed to 24.5 percent for 2006 as a whole.

Faster Than India

Industrial production growth has accelerated this year after cooling in the final quarter of 2006, falling to a two- year low of 14.7 percent in October. For the first four months, output rose 18 percent from a year earlier. Growth for all of 2006 was 16.6 percent.

In India, the world's second fastest-growing major economy, production increased 12.9 percent in March.

China is trying to cool lending and investment as exports flood the economy with cash.

The People's Bank of China has raised interest rates three times since April last year, ordered lenders to set aside more money as reserves and sold bills to soak up cash. The benchmark one-year lending rate is 6.39 percent.

The central bank retains a "tightening bias," said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.

Environmental Curbs

China has also curbed land use, cut export rebates and imposed environmental restrictions on development. Premier Wen will lead a task force to cut energy consumption and emissions. The government this week said it ordered 11 companies along the northeastern Songhua River to stop production because of pollution violations.

Exports jumped 26.8 percent in April, accelerating from the previous month, as the trade surplus swelled 63 percent from a year earlier to $16.9 billion. Banks extended 1.8 trillion yuan of new loans in the first four months, more than half the total for all last year.

A surging stock market is boosting consumption and swelling companies' investment coffers. Retail sales climbed 15.5 percent in April, the biggest increase since May 2004 after eliminating seasonal distortions.

The benchmark CSI 300 Index of shares in Shanghai and Shenzhen is up 78 percent this year, prompting government cautions that a bubble may be forming. A 9 percent plunge on Feb. 27 helped trigger a global stock rout.

China's economy, the world's fourth largest, grew 10.7 percent in 2006, the biggest increase in 11 years.

Foreign-Owned Factories

Foreign direct investment in China rose 10.2 percent in the first four months to $20.4 billion, the Ministry of Commerce said in Beijing Wednesday. At that pace, investment in 2007 will be close to last year's record of $63 billion.

Illinois-based Caterpillar Inc., the world's largest maker of earthmoving equipment, this month opened a plant in the southern Jiangsu province.

Foreign manufacturers had more than 300,000 factories in China by the end of 2006, according to a report this month by HSBC Holdings economist Qu Hongbin in Hong Kong.

China's ballooning trade surplus is entirely due to the nation's role as a final assembly point for manufacturers, Qu wrote. About 80 percent of the assembly factories are foreign- owned, he said.

Jiangxi Copper

Jiangxi Copper Co., China's second-biggest producer of the metal, will start production at a new smelter with annual capacity of 300,000 metric tons from Aug. 1, the company said.

Textile output rose 16 percent in April from a year earlier, the statistics bureau said. Production of ferrous metals jumped 26 percent, and cement output climbed 15 percent.

Anhui Conch Cement Co., China's biggest maker of the building material, reported profit jumped 36 percent in the first quarter on a domestic construction boom.

Industrial production "is under control, but it's still concerning the central government," said Winson Fong, chief investment officer at SG Asset Management in Singapore.

A slowing U.S. economy may curb demand for products made in China. Gross domestic product in the world's largest economy grew 1.3 percent in the first-quarter, the smallest increase in four years. The U.S. was the biggest buyer of China's exports in 2006.

China's trade surplus last year was a record $177.5 billion and economists expect the gap to top $200 billion in 2007.