China cut benchmark interest rates for the second time in amonth and allowed banks to offer bigger discounts on their lendingcosts, stepping up efforts to reverse a slowdown.

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The one-year lending rate will fall by 31 basis points and theone-year deposit rate will drop by 25 basis points effectivetomorrow, the People's Bank of China said on its website today.Banks can offer loans of as much as 30 percent less than benchmarkrates, the central bank said.

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China is acting more aggressively to promote growth that mayhave decelerated for a sixth quarter as Europe's turmoil crimpsexports and domestic property restrictions curb the housing market.Officials moved after two manufacturing indexes fell in June andahead of a report on second-quarter gross domestic product, due tobe released on July 13.

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“If China wants to ensure a growth rate of above 7.5 percent oreven 8 percent, it has to enhance policy fine-tuning,” Qu Hongbin,Hong Kong-based chief China economist for HSBC Holdings Plc, saidbefore the release.

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The PBOC cut both benchmark lending and deposit rates by 0.25percentage point on June 7, the first reduction since 2008.Authorities also allowed banks to offer higher rates on depositsand lower borrowing costs on loans. The central bank said on June29 it will keep fine-tuning policy even as the growth rate waswithin a “targeted zone.”

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China's economy expanded 8.1 percent in the first quarter of2012 from a year earlier, the least in almost three years and thefifth quarterly slowdown. Bank of America Corp. estimated expansionslid to around 7.5 percent in the second quarter while CreditAgricole CIB projected a drop to as low as 7 percent.

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China cut interest rates last month for the first time in threeyears before government reports that showed consumer prices rose 3percent in May, the least in two years, and industrial output andretail sales trailed estimates.

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Companies from Nike Inc. to McDonald's Corp. and CaterpillarInc. are feeling the effects of a Chinese slowdown. Nike has saidit has too much inventory in the nation.

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Anhui Conch Cement Co., China's biggest maker of theconstruction material, said first-half profit may fall by more than50 percent, and Procter & Gamble, the world's biggest consumergoods company, has reported a slowdown in the Asian nation.

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Credit Suisse Group AG has reduced its estimate for China'seconomic expansion this year to 7.7 percent, which would be theslowest pace in 13 years, on weakness in exports, investment andcorporate profits. Deutsche Bank AG lowered its forecast to 7.9percent. The predictions compare with a 9.2 percent expansion lastyear.

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In efforts to support the economy, the National Development andReform Commission is speeding approvals for investment projects,the Ministry of Commerce announced incentives for purchases ofenergy-efficient household appliances and the banking regulatordelayed tightening lenders' capital requirements.

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Bloomberg News

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