China is cracking down on property speculation to prevent asset bubbles and restrain inflation after the economy grew 11.9 percent in the first quarter. Europe's debt crisis makes an immediate interest-rate increase in China less likely and could delay gains in the yuan by signaling weakness in the global economy, according to Bank of America-Merrill Lynch.

There are signs of overheating pressures although government measures are helping to cool the property market, Chang Jian, an economist at Barclays Capital Asia Ltd., said in Hong Kong before today's report. The government will be monitoring closely developments in Europe when making decisions on policy moves.

Chang said interest rates could rise later this quarter as inflation pressures grow.

New Orders

An output index rose to 59.1 from 58.4 in March, the new- order index advanced to 59.3 from 58.1 and the export-order index stayed unchanged at 54.5. An input-price index increased to 72.6, the highest in 22 months.

Today's PMI figure compares with a record-low 38.8 in November 2008, when the credit crisis and recessions in overseas markets sent export orders plunging. The economy rebounded on the 4 trillion yuan ($586 billion) stimulus plan announced that month and record new loans from banks.

Exports are recovering, climbing 29 percent in the first quarter from a year earlier, with their value topping the level of the same period in 2008, before the crisis hit.

Industrial companies'profits are also up, more than doubling in the first quarter from a year earlier, statistics bureau figures for 24 provinces showed. Baoshan Iron & Steel Co., the nation's largest publicly traded steelmaker, estimates that its first-half profit may increase as much as 10-fold from a year earlier.

Moderately Loose

Still, the central bank last week reaffirmed a moderately loose monetary policy, adding that the world's recovery remains on a fragile foundation. China faces a complex economic environment this year amid weak global recovery and domestic problems including difficulty in managing inflation expectations and risks in local government borrowing and property loans, banking regulator Liu Mingkang said yesterday.

Last month's acceleration in the PMI was partly seasonal as the index has usually been high in March and April in past years, Zhang Liqun, a researcher at the State Council��s Development and Research Center, said in the statement from the logistics federation.

There are still uncertainties in the growth of exports and domestic demand, which is still partly relying on government stimulus and lacking sustainability, Zhang said, highlighting notable production cost pressures in the future shown by the surging input price index.

While officials have pared back stimulus by targeting a 22 percent reduction in new loans this year and raising banks' reserve requirements, the central bank is yet to reverse the cuts in interest rates made to counter the global crisis. It has also left the yuan pegged at about 6.83 per dollar since July 2008 to aid exporters.

Rescue Package

European officials are working on a rescue package for Greece, trying to prevent the nation's debt woes from spreading in the region. Europe is the largest buyer of merchandise from China, the world's biggest exporting nation.

Lu Ting, a Hong Kong-based economist at Bank of America- Merrill Lynch, said last week an interest-rate increase this quarter is less and less likely because of Greece's credit- rating downgrade. He predicts a move in the fourth quarter.

China's economy may expand 10 percent this year and 9.9 percent in 2011, the International Monetary Fund estimated last week in a report. It also said that Asia's economic recovery is attracting capital inflows that may cause the region to overheat and lead to the formation of asset bubbles.

In China, measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases. The government intensified its campaign against speculation after a record 11.7 percent gain in property prices across 70 cities in March from a year earlier.

The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics. It started in January 2005.