HONG KONG (Bloomberg) — China's government reported industrial production growth unexpectedly accelerated in May, hours after Premier Wen Jiabao said further steps are needed to cool the world's fastest-growing major economy.Output rose 18.1 percent in May from a year earlier, the National Bureau of Statistics said yesterday, after gaining 17.4 percent in April. That compared with the 17 percent median estimate of 19 economists surveyed by Bloomberg News.

Wen said last night that monetary policy needs "moderate tightening," underscoring the failure of two interest rate increases this year to slow the economy. Record trade surpluses have pumped money into the financial system, stoking investment, inflation and a stock market boom.

"Monetary tightening of some form is now imminent," said Wang Qing, chief China economist at Morgan Stanley in Hong Kong.

The benchmark one-year lending rate is 6.57 percent and the deposit rate is 3.06 percent. The central bank has also ordered lenders to set aside more reserves five times this year.

The CSI 300 Index of stocks closed down one percent at 3 p.m. in Shanghai. The yield on a three-year bond rose 0.1 percentage point to 3.4 percent. The yuan rose 0.06 percent against the US dollar to 7.6317.

Output growth was the fastest since the 18.5 percent pace of January and February. Figures for those months are combined to eliminate distortions caused by the timing of Lunar New Year holidays.

For the first five months, industrial production climbed 18.1 percent from the same period last year, up from 16.6 percent growth for all of 2006.