China has extended a selective rise of the reserve requirement ratio for six large banks for another three months after an initial two-month period in its latest move to soak up liquidity, industry sources said yesterday.

The 50 basis-point increase announced in mid-October was due to expire this week. The six banks are the Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, China Merchants Bank and China Minsheng Banking Corp.

The move came after China last Friday raised the reserve requirement for all banks for the third time in five weeks to 18.5 percent. After the extension of the selective increase, the reserve ratio for the six banks will hit a record high of 19 percent.

"It's in line with a prudent monetary policy," said one Shanghai-based banking insider. "Now we expect more increases on the reserve ratio in the first quarter of next year."

Reuters reported that the extension would lock up about 180 billion yuan (US$27 billion) from lending.

China's consumer prices growth soared to a 28-month high of 5.1 percent in November while bank lending also exceeded analysts' forecasts, prompting the government to take action to mop up liquidity.

Early this month, China announced a shift to a "prudent" monetary policy next year from the current "moderately loose" stance after a meeting of top leaders of the Communist Party of China chaired by President Hu Jintao.

The meeting also concluded that macroeconomic policies will become more targeted, more flexible and more effective, paving the way for the country to tighten lending controls and raise interest rates.

During the three-day annual central economic work conference which ended on Sunday, Chinese leaders again vowed to give priority to combating inflation next year to ensure stable economic growth.

China surprised the market by hiking key interest rates in October, the first time in three years.

Prior to the selective rise, the central bank has increased the banks' reserve ratio six times this year with a combined rise of 3 percentage points.

"The hike in banks' reserve ratio is the most frequently-used and efficient tool to mop up liquidity," said Zhu Weimin, a trader at Shanghai Securities Co. "We also need to take preemptive steps against hot money on growing inflationary pressure."

In November, central bank Governor Zhou Xiaochuan said China's existing foreign exchange controls were able to prevent inflows of irregular capital.

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