* GDP rose 7.8 percent in Q3 versus year earlier
* Economy grows 2.2 percent from previous quarter
* GDP up 7.7 percent in first nine months vs year earlier
* Global demand remains volatile
* Efforts to restructure economy to weigh on growth
By Aileen Wang and Kevin Yao
BEIJING, Oct 18 (Reuters) - China's economy grew at itsquickest pace this year between July and September in a reboundfuelled largely by investment, although signs are alreadyemerging that the pick up in activity may lose some vigour.
Gross domestic product in the world's second-biggest economyrose 7.8 percent from a year earlier, official data showed,marking only the second quarter in the last 10 in which growthhas accelerated.
An unexpected fall in exports in September, and easinggrowth in factory output and retail sales suggested the economywas already slowing down at the end of the quarter.
Authorities are also expected to cool credit growth asinflation pushes to a seven-month high, another factor analystssay will drag on economic activity.
"The growth peak was behind us in the third quarter," saidTing Lu, an economist at Bank of America-Merrill Lynch. "Webelieve the People's Bank of China will slightly shift itsmonetary policy from a moderate expansion in the third quarterto a neutral stance."
After three decades of double-digit growth heavily relianton exports and investment, China is trying to shift or"restructure" the economic mix so that activity is geared muchmore to consumption, as it is in more developed countries.
But the latest figures show investment accounted for overhalf of the expansion so far this year, underlining thechallenge Beijing faces to restructure the economy, which ithopes will provide for more sustainable growth in the future.
Reducing reliance on China's traditional growth drivers isexpected to crimp the economy, although sluggish global demandhas provided an added drag.
In the first nine months of the year, the $8.5 trillioneconomy grew 7.7 percent from a year earlier, putting it ontrack to achieve Beijing's 2013 growth target of 7.5 percent,which would still be China's worst performance in 23 years.
The surprise fall in exports came after emerging marketdemand wilted as choppy financial markets sapped confidence, atrend the government said this week is likely to continue.
The impasse in the U.S. Congress over the government's debtceiling could be replayed before a new Feb. 7 deadline, shakingconfidence once more.
And with the yuan hitting a record high on Fridayfor the fifth consecutive day, Chinese exporters face the hurdleof a rising currency eroding their competitiveness.
"The economy is facing a complex and uncertain domestic andinternational environment," Sheng Laiyun, a spokesman for theNational Bureau of Statistics told a briefing.
"In addition, we have accumulated chronic structuralimbalance problems in our economy and need to deepen reforms."
The data shows China is a long way from having consumptionas the main driver of its economic growth.
Consumption accounted for 46 percent of growth in the firstnine months, compared with 56 percent taken up by investment.Exports, on the other hand, subtracted 1.7 percent from growth.
The government has sped up projects in infrastructure tosupport growth, although it has stayed away from more aggressivemeasures to avoid undermining its efforts to steer the economyin another direction.
Overall investment in infrastructure expanded at a red-hotpace of 29 percent between January and September, thesecond-fastest area of investment growth after agriculture.
Nie Wen, an analyst at Hwabao Trust in Shanghai, estimatedgovernment-backed investment could have accounted for around 25percent of the total in the first three quarters of the year,Usually, it is 15-20 percent, Nie said.
Investment in the property sector, where prices are atrecord highs despite measures to calm the market, were alsoespecially buoyant, with the housing industry accounting for 16percent of the economic activity in the first nine months. Thatis up from 15 percent in the first six months.
Overall investment rose in the first nine months by 20.2percent from a year earlier, compared with expectations for a20.3 percent gain.
CONTROL LOAN GROWTH
The figures suggesting the economy lost steam towards theend of the third quarter mirror a fall in power consumptiongrowth, one of the barometers of economic health favoured byChina's Premier Li Keqiang.
Factory output in September climbed 10.2 percent from a yearearlier, slightly above expectations of 10.1 percent but weakerthan August's annual pace of 10.4 percent.
Retail sales rose 13.3 percent from a year ago, slightlymissing forecasts for a 13.5 percent rise and down from August's13.4 percent gain, despite a seasonal spike in car purchases.
To underpin the economy, most analysts believe China willkeep interest rates unchanged in the next year-and-a-half.
But with inflation hitting a seven-month high in Septemberof 3.1 percent at a time when the central bank has voicedconcerns about a brisk expansion in credit, points to somepolicy tweaks.
Chinese banks lent more than expected in September, datashowed last week, taking total loans issued for the year to 7.3trillion yuan, a level that could easily breach last year's 8.2trillion yuan.
Lu from Bank of America-Merrill Lynch said the governmentcould take steps to crimp rapid credit expansion and avoidexpanding its "mini stimulus", which has so far includedaccelerating infrastructure investment.
"This could be as good as it gets," said Mark Williams fromCapital Economics in London. "We continue to expect grossdomestic product growth to slow next year to around 7 percent."
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