China’s inflation held above 5 percent in April and lending exceeded analysts’ estimates, signaling that further monetary tightening may be needed to cool the fastest-growing major economy.

Consumer prices rose 5.3 percent from a year earlier and banks extended 740 billion yuan ($114 billion) of local-currency loans, according to reports from the statistics bureau and central bank. Weaker industrial-output growth, also reported today, may diminish price pressures in coming months.

Today’s data showed that inflation has exceeded Premier Wen Jiabao’s 4 percent target for 2011 each month this year. The figures may buttress the case made by U.S. Treasury Secretary Timothy F. Geithner in annual bilateral talks in Washington this week that China needs a stronger yuan to contain prices and spur domestic demand.

“Inflation is too high and will keep the policy bias in favor of more action over the next few months -- we expect another two rate hikes and further yuan appreciation against the dollar,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada.

The Shanghai Composite Index rose 0.1 percent as of the 11:30 a.m. local time break in trading. Non-deliverable yuan forwards indicated the currency may gain about 2.4 percent against the dollar in the next 12 months from a rate of 6.4926.

Investment Surges

Inflation compared with the 5.2 percent median forecast in a Bloomberg News survey of 30 economists and an almost three- year high of 5.4 percent in March. Output growth slowed to 13.4 percent, the least since November, and a 17.1 percent expansion in retail sales was below economists’ median 17.6 percent estimate.

Today’s report showed a 25.4 percent increase in fixed- asset investment in the first four months of the year. That figure, combined with a report yesterday showing record export shipments in April, indicates the world’s second-biggest economy has made limited progress in shifting to a growth model more driven by domestic demand.

“The data looks bad,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “The economy is slowing more sharply than expected but inflation is not.”

Bank of America Merrill Lynch called the numbers “mixed,” saying that power shortages and, to a lesser extent, disruptions from Japan’s earthquake may have limited industrial output. Hong Kong-based economist Lu Ting said policy makers can control inflation without causing an economic “hard landing.”

Producer Prices

In an encouraging sign for Chinese officials, producer prices increased 6.8 percent, less than economists’ median forecast and also below the 7.3 percent rate in March. In addition, growth in M2 money supply slowed to 15.3 percent.

Economists’ median forecast is for one more interest-rate increase this year, adding to four since mid-October, as a dip in commodity costs and more favorable bases for comparison help to limit price gains in the second half.

Officials have raised banks’ reserve requirements, reined in credit growth from the record levels of 2009 and 2010, restricted home purchases, and said this month that consumer goods company Unilever will be fined 2 million yuan ($300,000) for telling the media that it planned to raise prices.

Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at the Washington talks.

“Another slight uptick in inflation is possible by mid- year, but it seems that for inflation, the worst is nearly over for China,” Alaistair Chan, a Sydney-based economist at Moody’s Analytics said before today’s announcement.

Commodity Rout

Commodities had their biggest weekly decline since December 2008 last week, aiding the campaign to tame inflation by trimming the nation’s import bill.

The median forecast in a Bloomberg News survey of analysts is for the benchmark one-year lending rate to rise by a quarter percentage point to 6.56 percent by the end of the year. The People’s Bank of China let the yuan gain 0.9 percent against the dollar in April, the fastest pace of appreciation this year.

“With economic growth stabilizing, policy makers signaling they are willing to tolerate faster currency appreciation, and global food prices stalling, inflation appears on course to decline over the second half of the year,” Wang Qinwei, a London-based economist with Capital Economics, said before today’s data.

Deutsche Bank AG estimates the yuan may appreciate at an annualized pace of 7 percent to 10 percent against the dollar over the next two months to reduce import costs before gains slow in the second half as inflation drops “sharply.”