China finished 2010 with a bang, its growth soaring past expectations while inflation slowed just a touch, numbers that could prod the government to ratchet up its easy-does-it approach to tightening.

Food costs, the main driver of Chinese inflation, have picked up again in recent weeks, showing that Beijing still has its work cut out to keep a lid on price pressures.

But other important December data, from factory output to investment, painted a picture of solid expansion, showing that the world's second-largest economy was still free from overheating, despite the surprise jump in growth.

China's annual gross domestic product growth sped up in the fourth quarter to 9.8 percent from 9.6 percent in the third quarter, the National Bureau of Statistics (NBS) said on Thursday, defying expectations for a slowdown to 9.2 percent.

Consumer prices rose 4.6 percent in December from a year earlier, slowing from a 28-month high of 5.1 percent in November but staying above forecasts for a steeper fall to 4.4 percent.

Inflation pressure is intensifying into January and the tightening pressure will intensify, especially considering the stronger-than-expected fourth-quarter GDP growth, said Isaac Meng, economist with BNP Paribas in Beijing.

Financial markets took the numbers in stride, barely moving after the growth and inflation figures were published a day in advance by local media.

China has officially raised banks' required reserves seven times since the start of last year, but has increased interest rates only twice during that time, with some analysts warning that more aggressive moves are needed.

The government is also still debating the extent of credit curbs and reports in recent days have pointed to a lower ceiling on bank lending than some investors had expected.

INFLATION WORRY

In month-on-month terms, the December numbers registered a clear slackening of price pressures. Consumer prices rose 0.5 from the previous month, down from a 1.1 percent rise in November.

Weekly food price movements had long pointed to a decline in inflationary pressure in December, but many analysts also reckoned that any slowdown in inflation could be temporary.

Price pressures could pick up in January, because of harsh winter weather could compound a surge in demand with the Lunar New Year holiday falling earlier in the calendar this year compared with 2010.

Food price data compiled by the commerce ministry has showed that vegetables and meat have become more expensive since the start of the year.

Growth momentum remains strong. However, inflation is the key focus of the market. It will be a challenging year for China to battle inflation, said Dongming Xie, China economist at OCBC Bank in Singapore.

December inflation is higher than our expectations. Food prices continued to go up in the first half of this month due to seasonal demand, he said.

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