China's economy is expected to grow by 8.5 per cent in the third quarter, a government think tank was quoted by state media as saying yesterday, suggesting Beijing would maintain a loose monetary policy.

The figure compares with the year-on-year 7.9 per cent growth seen in the second quarter, as the government's $585 billion stimulus measures start to gain traction.

The consumer price index, a main gauge of inflation, is forecast to fall by 1.3 per cent year-on-year in the third quarter, the Xinhua news agency reported, citing the State Information Centre.

The producer price index, which measures inflation at the wholesale level, is projected to drop 7.9 per cent year-on-year, said the report.

China's export-dependent economy was hit hard by the global financial crisis and growth slowed to 6.1 per cent in the first quarter, the lowest quarterly rise in a decade.

The think tank suggested Beijing stick to a moderately easy monetary policy in the second half of this year to assist economic development, Xinhua said.

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