Aug. 14 (Bloomberg) -- China's factory and property spending rose 26.8 percent in the first seven months, adding pressure for an interest-rate increase to prevent the economy overheating, according to a Bloomberg News survey of economists.

The median estimate of 17 economists compares with the 26.7 percent jump in urban fixed-asset investment in the first half. The National Bureau of Statistics will release the figure at 10 a.m. on Aug. 16.

China's surging trade surplus has flooded the financial system with cash, fueling investment, asset bubbles and inflation at the highest rate in more than a decade. The central bank raised interest rates three times this year to cool the world's fastest-growing major economy and told banks to set aside larger reserves.

``Monetary policy has been tightened from a very loose position so it hasn't acted as a brake to slow the economy,'' said Amy Auster, senior economist at ANZ Banking Group in Melbourne. ``Interest rates are still so low and reserve requirement hikes have not eaten into banks' ability to extend loans.''

Growth in fixed-asset spending has accelerated each month since March and the central bank last month described investment as ``too fast.'' Excessive spending raises the risk of overcapacity if the economy slows.

Sany Heavy Industry Co., China's biggest maker of equipment for handling concrete, is expanding, planning a factory to more than double production.

Investment Pace

While investment growth is faster than the 24.5 percent increase for all of 2006, it's slower than the 30.5 percent gain for the first seven months of last year.

China's trade surplus rose 67 percent in July from a year earlier to $24.4 billion, the second-highest on record. Exports jumped 34 percent. Inflation accelerated to 5.6 percent.

Preventing overheating is the top economic policy goal for the second half of the year, according to the National Development and Reform Commission, China's top planner, and the central bank.

Besides raising interest rates, the People's Bank of China has ordered lenders to set aside larger reserves on six occasions this year. Still, Chinese banks extended 2.8 trillion yuan of new loans in the first seven months, an increase of 427.8 billion yuan from the same period last year.

Industrial Production

Industrial production likely gained 18.5 percent in July from a year earlier after jumping 19.4 percent in June, the Bloomberg News survey showed. That figure is due at 10 a.m. tomorrow.

The government has restricted project approvals, curbed land use, imposed environmental rules and cut export rebates to slow investment in industries with excess capacity including steel and cement.

China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years, on exports and investment.

Growth in retail sales likely continued to lag that of exports and fixed-asset investment. Consumers probably spent 16.2 percent more in July than a year earlier, according to the Bloomberg News survey. The increase was 16 percent in June.

The report will come at 10 a.m. today.

The following table shows economists' estimates for percentage changes in China's urban fixed-asset investment in the first seven months from a year earlier, followed by growth in industrial production and retail sales in July.

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                             FAI       IP   Retail
Firm                        YoY%     YoY%     YoY%
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Median                     26.8%    18.5%    16.2%
Average                    26.7%    18.9%    16.2%
High                       27.1%    21.3%    16.5%
Low                        25.9%    17.5%    15.8%
Number of Estimates           17       18       18
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Action Economics           27.0%    18.0%    16.5%
ANZ Banking Group          27.0%    17.8%    15.8%
Bank of China (Hong Kong)  26.8%    19.8%    16.1%
Bank of East Asia          26.0%    17.5%    16.3%
Capital Economics          26.9%    18.3%    15.9%
CIMB-GK Research           26.2%    18.5%    15.9%
Deutsche Bank              27.0%    20.5%    16.2%
Forecast Ltd.              26.5%    18.5%    16.0%
Hang Seng Bank             26.9%    18.9%    15.8%
High Frequency Economics      --    21.3%    16.2%
HSBC                       27.0%    19.2%    16.2%
ING Groep NV               26.5%    18.7%    16.4%
JPMorgan Chase             26.6%    17.9%    16.4%
Lehman Brothers            27.0%    18.0%    16.0%
Mitsubishi UFJ Securities  25.9%    18.1%    16.3%
Royal Bank of Scotland     27.1%    20.5%    16.1%
Standard Chartered Bank    26.8%    20.4%    16.3%
Westpac Banking Corp.      26.7%    17.5%    16.3%
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To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: August 13, 2007 12:00 EDT