CHINA has ordered its banks to set aside more money in reserves for the seventh time since last July to soak up liquidity and slow investment.

The reserve ratio - the amount of money a bank must keep at the central bank - will increase 0.5 percentage point to 11 percent on yuan deposits starting on May 15, the People's Bank of China said on its Website yesterday.

The raise, the fourth this year, is the same amount as the past six increases. "The hike is aimed at the influx of liquidity and to help a rational credit growth," the central bank said in the statement.

The central bank is concerned that cash from a yawning trade surplus is stoking excess investment in an economy that expanded a fastest-than-expected 11.1 percent in the first quarter.

The quarterly expansion was the second fastest in a decade, trailing only the 11.5 percent climb in the April-June period of last year.

Consumer prices, the main gauge of inflation, rose 2.7 percent in the first quarter, compared with a 1.5 percent increase for all of last year.

Economists and analysts have already forecast more moves from the central bank, like a reserve requirement lift or an increase in interest rates this year, to rein in the economy. The central bank is concerned that the huge amount of capital may cause a stock-market bubble and over-investment.

"The move is within expectations as the rush of capital has been a big concern these days," said Wu Kan, a Shanghai Securities Consulting Co analyst.

New loans in the first quarter added 1.4 trillion yuan (US$181 billion), already close to the central bank's whole-year target of 2.9 trillion yuan, the PBOC said in mid-April.

Shares of listed banks may be hit by the move as lenders have less money on hand, Wu said.