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BEIJING: China is likely to raise interest rates in the coming days in a demonstration of the government's resolve to tame inflation, Reuters reported on Tuesday.

In a banner headline across its front page, the China Securities Journal said this weekend offered a 'sensitive window' for a rate rise, which would be the country's second, after a surprise increase in October, the central bank's first rate hike since 2007.

An increase in rates would also put flesh on the bones of Beijing's announcement late last week that it was switching to a 'prudent' monetary policy from the 'appropriately loose' stance of the past two years.

The report weighed on Asian stock markets in early trade, though the country's main index in Shanghai later pared losses. Chinese asset markets have tumbled in recent weeks, as investors have priced in more tightening.

The newspaper said the timing was right for a rate rise with official monthly economic indicators, notably the consumer price index , likely to show an increase in inflationary pressure when released on Monday, December 13.

'With reference to the central bank's record of raising interest rates just ahead of the release of CPI, this weekend will provide a window for a possible policy change,' the newspaper said, without citing any source.

China's CPI in November may have accelerated to a 27-month high of 4.7 per cent from a year earlier, according to a Reuters poll, up from a 4.4 per cent pace in October.

'The general trend of China's monetary policy is appropriate tightening on the basis of the previous extremely loose stance,' said Chen Jiagui, a senior government economist.

Traders in China's inter-bank market said big lenders have already prepared enough money for another 50 basis point increase in banks' required reserves, which are already at a record high for big banks.

So far, the People's Bank of China has relied primarily on reserve requirements to mop up excess cash in the economy, officially ordering lenders to lock up more of their deposits five times this year.

Banks had also been holding back from lending in anticipation of more government moves to curb inflation, driving up short-term money market rates. But these rates tumbled on Tuesday, after large banks caved into pressure from smaller institutions which had refused to borrow at the higher rates.

But concern over further hot money inflows could make Beijing hesitate before raising interest rates aggressively.