China's annual economic growth surged to an 11-½ year high of 11.9 percent in the second quarter, cementing expectations for tighter policy to keep the world's fastest-growing major economy from overheating.

The figures put China on course to chalk up its straight fifth year of double-digit growth and to overtake Germany as the world's third-biggest economy -- perhaps as soon as this year.

It's stunning. We should expect them to raise interest rates or reserve requirements at any moment, said Tim Condon, head of Asia research at Dutch bank ING in Singapore.

The spurt in gross domestic product growth from 11.1 percent in the first quarter blew past expectations of a 10.8 percent rise, data from the National Bureau of Statistics showed on Thursday.

We will continue with moderate tightening to control the monetary and credit situation, Li Xiaochao, the statistics agency's spokesman, told reporters.

The data prompted a flurry of growth upgrades. Goldman Sachs, for one, now expects eye-popping growth of 12.3 percent in 2007.

Soaring costs of pork and grain pushed annual consumer price inflation to a 33-month high of 4.4 percent in June, beating expectations and accelerating from 3.4 percent in May.

Other figures also were stronger than expected: industrial output in June rose 19.4 percent from a year earlier, retail sales were up 16.0 percent and investment in urban areas was up 28.5 percent.

Obviously, this puts even more pressure on the authorities to take prompt action to look at their strategy, Tai Hui, an economist with Standard Chartered Bank in Hong Kong, said.

They may not call it overheating, but the truth is, these numbers are incredibly high, he said, describing 11.9 percent growth as in the stratosphere.

A rate rise -- which would be the third this year -- could come as soon as Friday, said both Hui and Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

The markets took the talk of imminent tightening calmly. The yuan edged up to 7.5632 per dollar from 7.5661 at Wednesday's close, while the stock exchange's main index closed 0.44 percent lower.

VARIETY OF COOLING TOOLS

Apart from raising interest rates and banks' required reserves, the central bank could suck cash out of the banking system by selling bills and lean on state banks to lend less.

Beijing could also withhold approval for new investment projects and tweak taxes to deter energy-intensive exports -- as it did on Thursday with aluminum.

Another likely move is the reduction or abolition of a 20 percent tax on interest income to dissuade savers from pulling money out of low-yielding deposits to pump it into red-hot stock and property markets.

And China could let the yuan appreciate faster to cap the gusher of export earnings pouring into the country.

That would please U.S. and European politicians railing against their countries' ballooning trade deficits with China, although Beijing has repeatedly said it has no plans to permit a sharp rise for fear of export and farm job losses.

CLOSING THE GAP

Higher borrowing costs and five increases this year in the proportion of deposits that banks must hold in reserve have had little impact so far on the economy, which is firing on all cylinders.

Investment in fixed assets such as factories and real estate was up 25.9 percent in the first half of the year; the trade surplus is setting successive monthly records; and retail sales in the first six months grew at the strongest rate since 1997.

The authorities are likely to impose new curbs on investment in sectors that guzzle energy and spew out pollution, said Qu Hongbin, chief China economist at HSBC in Hong Kong, who also expects an array of monetary tightening steps.

However, all these measures are usual stuff. Although they may help stop growth in investment and credit from accelerating further, they won't cause a meaningful slowdown in growth in the second half of 2007, he said in a note to clients.

While Beijing needs to control inflation, the ruling Communist Party must also find some 10 million jobs every year for workers leaving the land and flocking to the city, he noted.

And because rising inflation is almost entirely due to a surge in food prices, the central bank would not slam on the brakes, Qu said.

As a result, the risk of over-tightening in the rest of year is still remote, in our view, he added.

The quarterly economic growth rate was the strongest since the last three months of 1995, Lehman Brothers said. The economy expanded 10.9 percent that year after 13.1 percent growth in 1994.

After leapfrogging Britain in 2005 to become the fourth-largest economy, China is now breathing down Germany's neck. China's GDP was $2.7 trillion in 2006, just below Germany's $2.9 trillion, World Bank figures show.

Li said estimates of aggregate GDP vary depending on exchange rates: But one thing is certain: we are drawing nearer to Germany and the gap between us is becoming smaller.

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