The 50 basis-point increase in the reserve ratio requirement (RRR) means that big banks have to put aside 21.5 percent of their deposits, a record high, locking up funds that could otherwise be loaned out and so fuel inflation.

The central bank move came just hours after data showed that consumer inflation, largely fuelled by high food prices, rose in May to 5.5 percent, a 34-month high.

Even when food prices are stripped out, inflation was 2.9 percent, the highest level since records began in 2002 and a sign that price pressures are spreading in the economy.

Banny Lam, an economist at CCB International in Hong Kong, said the central bank's rapid response showed it was determined to get inflation down to low levels.

"I think it's a great message to the public," he said. "The RRR rise means the government is doing something. That is the key message the government is sending to the stock market investors and a warning to the banking system to be careful about their lending."

Chinese leaders have made bringing inflation under control their top priority this year, fearful that rising prices could not only unsettle the world's second-biggest economy but spark social unrest of the sort seen this week in southern China.

While the RRR increase was the ninth since October, the central bank has also raised interest rates four times over the same period to try to achieve average inflation this year of 4 percent.

Many analysts doubt that target can be achieved with average inflation in the first five months of 2011 already running at 5.2 percent.

Indeed, analysts expect inflation to rise to around 6 percent in June, adding to doubts the target can be met and suggesting further monetary policy tightening may be needed.

"I think it is also time for the central bank to consider raising interest rates as consumer inflation has yet to reach the peak," said Li Xunlei, an analyst at Guotai Junan Securities in Shanghai.

The reserves ratio increase takes effect on June 20, the central bank said on its website. It draws 380 billion yuan out of the banking system, analysts estimated, although they expect 601 billion yuan to enter the system in June from maturing bills and repurchase agreements.

Earlier, a flurry of data, including inflation and industrial output, suggested economic growth was slowing down, but not too quickly, relieving concerns that the world's second-biggest economy was heading for a hard landing.

"A measured slowdown in the Chinese economy is just what investors want, with today's figures providing some hope that this is just what is unfolding," said Keith Bowman, equity analyst at Hargreaves Lansdown.

China provided one of the few areas of growth during the global financial crisis, which is seen as still critical while Europe, the United States and Japan struggle to shake off the affects of downturn.

Du Zhengzheng, an analyst at Bohai Securities in Beijing, said the increase in the reserve ratio may now delay a rate rise slightly.

"I think the RRR rise this time aims mainly at curbing inflation ... The move is likely to delay the next interest rate rise to the end of this month or the beginning of next month," Du said.

The central bank's one-year lending rate is 6.31 percent and one-year deposit rate is 3.25 percent.

ECONOMY

May's inflation compared with expectations for 5.4 percent and was higher than 5.3 percent in April.

"Inflation pressures remain large," Sheng Laiyun, a spokesman for China's National Bureau of Statistics told a news conference after the release of the data. However, he said the economy was on track for "stable and relatively fast growth".

Producer prices rose 6.8 percent from a year earlier, above forecasts in a Reuters poll for a rise of 6.5 percent.

Industrial output in May rose 13.3 percent from a year earlier, the slowest pace since November and broadly in line with the median forecast of a Reuters poll of 13.2 percent.

Power shortages have contributed to the slowdown in factory output growth, said Xu Biao, an economist at China Merchants Bank in Shenzhen.

"It's worth noting that the slowdown in industrial production is not as bad as some had expected."

May retail sales rose 16.9 percent from a year earlier, compared with expectations for an increase of 17.0 percent, while fixed-asset investment between January and May rose 25.8 percent from a year earlier, against expectations for a rise of 25.2 percent.

Real estate investment rose 34.6 percent in the first five months of 2011 from a year earlier, compared with a rise of 34.3 percent in the first four months.

"Overall, China's economic growth is easing gradually, while consumer inflation is still within control. The central bank will raise interest rates again this month, but (then) there will be no further rate rises for the rest of this year," Xu Gao, an economist at China Everbright Securities in Beijing, said before the central bank announced an increase in the bank reserves ratio.

China's economy expanded in 2010 by 10.3 percent, a pace that slowed in the first quarter to 9.7 percent.

INFLATION FUEL

Inflation has largely been fuelled by a rise in food prices, exacerbated of late by a severe drought in farming heartlands. Sheng said pork prices rose in May more than 40 percent from a year earlier.

Some economists say inflation is also the result of China's massive stimulus during the global financial crisis. Like elsewhere, China is fighting the inflationary impact of a surge in global commodity costs, which some analysts said may be fuelling producer price pressures.

Premier Wen Jiabao said earlier this year that China would use all tools available to control inflation.

Serious inflation in the past has sparked social unrest. Although riots in the southern China factory town of Zengcheng were sparked by the abuse of a pregnant street hawker, underlying frustration at other social pressures, including rising food and housing prices, stoked local anger.