China's economy accelerated in the last quarter of 2010 to expand a blockbuster 10.3 percent for the year as its communist leaders struggle to keep growth on an even keel while cooling surging prices.

Figures released Thursday showed growth picking up in the fourth quarter, to 9.8 percent from 9.6 percent in July-September, as the world's second-largest economy gained momentum despite moves to curb a torrent of investment that is fanning politically risky inflation.

The inflation rate was 4.6 percent in December compared with a 28-month high of 5.1 percent the month before. That put inflation for the full year at 3.3 percent.

The news rattled investors who fear further moves to dampen credit. Markets across Asia fell, with Shanghai's benchmark Composite Index sliding 2.9 percent to 2,677.65.

"The only slight decline in inflation in December shows just how grim the situation is for cooling inflation," said Peng Yunliang, an analyst at Shanghai Securities. "In my view, inflation will remain a headache for the government in 2011."

Those pressures may force Beijing to slow the economy more aggressively, potentially crimping growth in a world increasingly dependent on Chinese demand.

The news, coming as Chinese President Hu Jintao celebrated what was viewed back home as a triumphant state visit to the United States, accentuated the wide divide between China, which has vigorously rebounded from the global crisis, and the still fragile U.S. and European economies.

Echoing earlier complaints by Beijing, the National Statistics Bureau commissioner, Ma Jiantang, blamed rising prices on lax monetary policies among "developed economies," which have fanned speculative demand and driven commodity prices higher.

But he acknowledged that increased costs for wages, land and other factors in China were also pushing prices higher.

Ma said the government had achieved "remarkable results" in its effort to cool inflation, adding: "But the price trends in 2011 cannot be taken lightly."

Many economists believe China's economy remains dangerously dependent on investment in real estate and construction. Such spending shot up 23.8 percent over a year earlier in 2010.

That was a big drop from the 30.1 percent increase fueled by stimulus spending to counter the global crisis in 2009. But renewed lavish lending by state-run banks may be inflating a potentially dangerous financial bubble and hindering moves to bring price increases under control, said IHS analyst Alistair Thornton.

"Should rampant liquidity drive inflationary pressure still higher, the policy dilemma facing the government will merely intensify," he said, characterizing moves to rein in credit so far as "timid."

China's leaders, mindful of the political turmoil brought on by previous bouts of inflation, have declared curbing price increases a top priority. They have hiked interest rates twice in the past four months and repeatedly tightened investment curbs to keep inflation from spreading throughout the economy.

So far, the price hikes appear not to have hit overall demand for consumer goods too hard: retail sales rose 18.4 percent in 2010 over a year earlier, jumping 14.8 percent when adjusted for inflation, Ma said.

Averages incomes for citydwellers rose 11.5 percent in 2010 to 21,033 yuan (about $3,200). Rural per capita income surged nearly 15 percent, but at 5,919 yuan ($900) it lags far behind.

Recent surges in costs for food and other basic necessities are hitting many families, especially those living on lower incomes.

"My pension is just 1,700 yuan ($260) a month, and even if it has been raised a bit, it cannot catch up with rising prices," said Ji Minlin, a 62-year-old retired bicycle factory worker who said she and her friends were combing supermarket for bargains.

"I do hope prices, especially food prices, won't rise anymore," she said.

Many analysts say authorities need to act more decisively to cool surging prices, especially as such pressures rise around the globe.

Following news earlier this week that the country's biggest state-run commercial banks splashed out nearly 240 billion yuan ($36.4 billion) in new loans in the first 10 days of the new year, the banking regulator again ordered banks to tighten risk controls and reportedly is considering ways to penalize banks for flouting orders to cut back lending.

With so much money sloshing around the economy, authorities have been hard put to get banks to rein in.

Borrowing for real estate development and other projects is the lifeblood for the sales by local governments of land use rights that provide a huge share of their revenues. Such sales rose 70 percent in 2010, helping push property prices 6.4 percent higher compared with a year earlier.

A huge pool of nonbank financing nearly doubled the amount of money available for investment last year, much of it "off balance sheet" lending whose exact scale is unknown.

"Because of the property bubble, risk exists almost everywhere in China's fragile financial system," said Yi Xianrong, an economist at the Chinese Academy of Social Sciences' Finance Research Center.


Associated Press writer Chi-Chi Zhang in Beijing and researcher Ji Chen in Shanghai contributed to this report.