SHANGHAI, July 23 -- CHINA yesterday announced the third interest-rate rise this year, and sharply cut its tax on interest from bank savings to fight inflation and ward off overheating in the economy.

The interest-rate rise, the fifth since April 2006, plus the tax cut, came the day after China announced its fastest economic growth in 11 years and the highest inflation since October 2004.

The one-year benchmark deposit and lending interest rates will both rise 0.27 percentage points from today, the People's Bank of China - the nation's central bank - said on its Website yesterday.

That takes the one-year benchmark lending rate to 6.84 percent from 6.57 percent. The one-year deposit rate gains from 3.06 percent to 3.33 percent.

All deposit rates will rise by 0.27 percentage points. Lending rates over terms longer than five years or less than six months will rise 0.18 percentage points, while other gauges all gain 0.27 percentage points.

Tax on interest earned from savings will drop from 20 percent to five percent from August 15, the central government said on its Website yesterday.

The tax cut is aimed at increasing bank deposits and making bank savings more attractive than investing in the booming stock market.

The benchmark Shanghai Composite Index has gained 49 percent this year after soaring 130 percent in 2006, raising fears of a crash.

The central bank also raised the interest rate on sight deposits (current deposits) to 0.81 percent from 0.72 percent, the first change since February 2002. Public housing loan rates will also rise 0.09 percentage points from today.

Economists have widely expected the latest round of interest-rate rises after the latest economic gauges.

China's economy grew 11.9 percent in the second quarter, from 11.1 percent in the first quarter.

Consumer prices, the main gauge of inflation, surged 4.4 percent in June from a year earlier, the highest pace since October 2004. The figure pushed the first-half consumer price index to 3.2 percent, outpacing the 2.7 percent rise in the first quarter. The figure, buoyed by rising food prices, is beyond the central bank's three percent annual target.

"The rates increase comes in a widely anticipated move after yesterday's (Thursday's) super-fast economic growth numbers," said Stephen Green, a senior economist at Standard Chartered Bank in Shanghai.

"Corporate in China is now looking at a much more activist PBOC, and that might start to make chief financial officers hesitant about starting new investment projects. At least, that is probably the PBOC's hope."

His view is echoed by Ma Jun, Deutsche Bank's chief economist in China.

Ma said the current policy direction - tightening monetary policy plus measures to address energy and environmental concerns and the trade surplus - will remain largely unchanged, and a massive program to sharply reduce fixed-assets investment is unlikely.