China's economy slows less than expected

China's economy slowed at the end of 2011.

It grew by 8.9 percent in the fourth quarter from a year earlier, the slowest growth rate in ten quarters. However, the fourth quarter growth rate was higher than the 8.7 percent expected by economists.

Compared to the previous quarter, the economy grew 2 percent in the fourth quarter, lower than the 2.3 percent increase in the previous quarter.

However, industrial production increased 12.8 percent in December from a year earlier, more than the 12.4 percent increase in November.

The fourth quarter economic report helped push the Shanghai Composite Index up 4.2 percent on Tuesday, the best gain since October 2009.

There was also better-than-expected economic news from the US on Tuesday. The Federal Reserve Bank of New York’s general economic index rose to 13.5 in January, the highest level since April, from 8.2 in December.

Continuing the better-than-expected pattern on Tuesday was a surprisingly large rise in the ZEW index to minus 21.6 in January from minus 53.8 in December. It was the largest single monthly increase in the index of German investor confidence since the survey started in 1991.

In another piece of positive news for the euro area, investor confidence in the European Financial Stability Facility appears to have been little affected by S&P's downgrade of its credit rating on Monday. The EFSF sold 1.501 billion euros of six-month bills on Tuesday with a bid-to-cover ratio of 3.1 and an average yield of 0.2664 percent.

Spain also managed to sell a total of 4.88 billion euros of 12- and 18-month bills on Tuesday. Yields were lower than in similar sales in December. Belgium and Greece also managed to sell bills at lower yields on Tuesday.

A report on Tuesday showing a fall in eurozone inflation in December means that the European Central Bank will probably continue to support financial markets in its monetary policy. The inflation rate in the euro area fell to 2.7 percent, the lowest since August and below an initial estimate of 2.8 percent, from 3 percent in November.

Also seeing a fall in inflation in December was the UK. The inflation rate fell to 4.2 percent in December from 4.8 percent in November.