DALIAN, China (Reuters) - China will unswervingly apply its policy mix of massive government spending and loose money because its economic recovery remains fragile, Premier Wen Jiabao said yesterday.

Wen's insistence on caution and policy consistency has been the refrain of Chinese leaders in recent months, even as data from car sales to housing starts suggest that the world's third-largest economy is well on the road to high-speed growth.

His one deviation from the standard script was to flag inflation as a risk, although the country is still experiencing deflation.

"We should fully implement and continuously improve policies and discover and resolve new problems in a timely manner," Wen told a meeting of the World Economic Forum in Dalian.

"We should be alert and prevent all potential risks, including inflation."

China's consumer prices have fallen for six straight months, but economists think the pace of decline may have bottomed out, setting the stage for a potential rebound in inflation, fuelled by a record surge of bank lending in the first half of this year.

If there was any question of China tightening monetary policy or reining in government spending, however, Wen made clear that Beijing would stay the course on its expansionary, stimulative path for now.

"The foundations of China's economic recovery are not stable, not solidified and unbalanced," he said.

"We cannot and will not change the direction of our policies at an inappropriate time. The top priority of our work is to maintain stable and quick economic growth, so we will unswervingly stick to a relatively loose monetary policy and an active fiscal policy."

China's latest economic data, covering the month of August, are due to be released on Friday and are expected to show an upturn in industrial output and steady growth in retail sales and investment.

New evidence of strength in China's property sector, vital to the country's economic health, was furnished on Thursday, with investment growth accelerating sharply and prices and sales continuing to rise in August.

Figures released by the National Bureau of Statistics showed investment in the property sector rose 14.7 percent in January through August compared with a year earlier, picking up from 11.6 percent annual growth in the first seven months.

Lin Songli, an economist with Guosen Securities in Beijing, said strong property investment, encouraged by strong sales, would likely replace government spending this quarter to become the key driver of economic growth.

"Direct government spending may ease a little bit, and property investment will take the lead," Lin said, adding property probably contributed the majority of growth in capital spending in August.