China's central bank raised borrowing costs as a stable economyand factory reflation give it scope to follow the Federal Reservein tightening policy.

Hours after the Fed's quarter percentage-point move, thePeople's Bank of China increased the rates it charges inopen-market operations and on its medium-term lending facility.

The central bank said markets expected higher borrowing costsand that open-market rate increases don't necessarily equate tointerest-rate hikes, according to a statement. With the economysteady, inflation rising and real lending costs going down,financial institutions have strong incentives to expand credit, andhousing prices have surged in some cities, it said.

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