China raises bank reserves again

(Reuters) - China's central bank raised lenders' required reserves on Friday for the fourth time in just over two months, stepping up the fight against inflation that it has vowed will be a top priority for the year.

By forcing banks to lock up more cash with the central bank, Beijing hopes to drain excess money from the economy and tame rising prices, which it worries may stir social unrest.

The move, well anticipated after China's top leaders planted the task of taming inflation at the top of their agenda, underscores the central bank shift to "prudent" monetary policy in December, from its previous "moderately loose" stance.

With inflation expected to stay elevated in coming months, barring a temporary dip in December from 28-month highs, analysts believe more tightening is on the cards.

"The rise is within market expectations, showing that the central bank is really concerned about inflation," said Dong Xian'an, chief economist at Industrial Securities in Beijing.

"We expect the central bank to raise interest rates once or twice more in the first quarter, and we expect two more RRR rises in the same period."

The 50-basis-point increase, effective January 20, will raise the reserve requirement ratio (RRR) for China's biggest banks to a record high of 19.5 percent.

Announced by the People's Bank of China in a terse statement published on its website www.pbc.gov.cn after the Chinese stock market .SSEC .SS had closed, it triggered knee-jerk selling in riskier assets such as the euro and oil.