China's economic expansion slowed in the third quarter to its weakest pace since early 2009, but core domestic drivers of growth remained robust, suggesting little chance that monetary policy can be relaxed near term.

Gross domestic product rose 9.1 percent in the third quarter from a year earlier, moderating from 9.5 percent in the previous quarter as the pace of exports softens. The rise was slightly below forecasts for a 9.2 percent increase.

Hong Kong and Australian stocks and oil prices slipped after the figures, which showed the economy's third-consecutive quarterly slowdown in annual growth and the weakest pace of expansion since 8.1 percent in the second quarter of 2009.

But the slowdown does not signal a shift in monetary policy in response, said Stephen Green, economist at Standard Chartered in Hong Kong.

GDP growth was surprising for the market on the downside, he said. There is clearer deceleration in the third quarter. No change in policy. Small signs of ad-hoc loosening but no macro change in policy.

Fixed-asset investment -- the core driver of China's rampant economic growth -- continued at a robust pace in the first three quarters of the year, chalking up annual growth of 24.9 percent, slightly ahead of forecasts of 24.8 percent.

However, China's real estate investment, which accounts for a fifth of the country's fixed-asset investment, cooled sharply to 25.0 percent in September from a year earlier, as compared with a rise of 31.6 percent in August, Reuters calculations show, based on the official data.

Although economic growth has moderated slightly, it's still stable, Sheng Laiyun, spokesman at the National Bureau of Statistics, told reporters after the data release, dismissing the risk of a sharp deterioration in the economy.

It is more likely that China will keep its stable and relatively fast economic growth in the next phase, he said when asked about the possibility of a dip in growth.


Investors were a little less sanguine in their initial reaction. Hong Kong's benchmark Hang Seng Index <.HSI> extended early declines, dropping by as much as 3.4 percent.

Shares in Australian miners fell on the prospect that China's demand growth for minerals is easing. Rio Tinto fell 4.7 percent and BHP Billiton dropped 3.2 percent.

Oil slipped, with the price of a barrel of Brent crude dropping below $110 per barrel as traders factored in risks of slowing demand in the world's second-largest oil consumer.

Reuters calculations suggest implied oil demand in China rose just 1 percent in September from a year earlier, its slowest rate of growth so far this year.

The overall picture is that China is not impervious to the fallout from the euro-zone debt crisis and the world's second-biggest economy is at risk if its top trading partner, Europe, does not resolve its festering debt problems.

Trade data last week showed annual growth in Chinese exports to Europe more than halved from August, with growth in China's overall exports falling to seven-month lows.

China's Statistics Bureau said the economy was facing increasing uncertainty at home and abroad and it called for the maintenance of stable economic policies.

Slower activity could help some of that stabilization process as it implies some softening of price pressures for inflation-wary officials in Beijing.

China's inflation, albeit easing, ran at an annual pace of 6.1 percent in September, within earshot of near three-year highs of 6.5 percent in July and well over Beijing's 2011 official target of 4 percent.

To combat rising prices and prevent them from stoking social unrest, Beijing raised interest rates five times and banks' reserve requirements nine times in the past year.


Measures to curb inflation have had a noticeable effect and price pressures should ease further in the fourth quarter of the year, the Statistics Bureau said.

Housing inflation eased to the lowest level this year in September as Beijing's tightening measures, including rationed bank credit and rising mortgage rates, began to bite.

The darkening world economic outlook has forced Beijing to stand pat on policy since July, with some analysts betting that authorities may even loosen policy a shade to support growth if needed.

To prop up the economy, analysts say China may opt to slightly loosen credit controls or even cut banks' reserve requirements from record highs to encourage more lending to firms, especially the smaller ones.

China has overtightened its policy since May. That has increased the risks of a hard landing, as global economic growth also slowed since the second quarter, said Dong Xian'An, chief economist at Peking First Advisory.

That risk of sharp economic slowdown in China still exists. We expect Chinese economic growth to slow down to around 8.6 percent in the fourth quarter, Dong added.

But few believe China is set to cut rates anytime soon given stubborn price pressures.

I don't think they will make any move (in rates) in the near term. Then maybe after a few quarters, toward the middle of next year, if everything is OK, I think they will continue to hike interest rates, not cut interest rates, said Ting Lu, economist at Bank of America-Merrill Lynch in Hong Kong.

(Editing by Ken Wills and Neil Fullick)