Bulging Economic Data Make China Rate Hike Likely

Chinese capital spending exceeded economist expectations in October, leading many to believe the PBOC (People's Bank of China) will raise interest rates for the sixth time this year, perhaps as early as Friday. Capital spending on fixed assets such as factories and power plants jumped 26.9% during the first three quarters of 2007, the fastest pace since Sept. 2006, and stronger than economist estimates of 26.3%. "That makes an interest rate rise more likely today. Everybody in the market is now expecting it," Qiu Gaoqing, an analyst with Bank of Communications in Shanghai, said. A 27 basis-point hike is seen as the most likely increment. "I'm pretty worried about this strong number because we think that the overcapacity issue is already a big problem, and this number is definitely making this more severe," Lehman analyst Mingchun Sun said. China's one-year lending rate currently stands at 7.29%. Also this week, China again posted a record trade surplus for October; saw the sharpest rise in retail sales since at least 1999; CPI climbed to a nearly 11-year high of 6.5%. All together, the world's number-four economy will likely grow more than 11% over 2007, a fifth straight year of double-digit growth (Reuters). ETFs FXI, GXC and PGJ all offer U.S. investors broad exposure to Chinese equity markets.

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.