European and Asian markets rose today on fresh speculation that China is set to ramp up stimulus spending in order to avoid a sharp economic contraction. According to a report by Credit Suisse released Monday, the central bank injection could be as high as 2 trillion yuan ($315 billion).

The speculation came as China's official Shanghai Securities News reported the country's biggest banks appeared to have accelerated lending towards the end of this month as Beijing started to fast track its approval of infrastructure investments.

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Stan Shamu, market strategist at IG Markets in Melbourne, said there are increasing expectations that China will relax monetary policy and also announce fiscal stimulus measures.

He told Businessweek:

This has been a predominant theme since Premier Wen Jiabao's comments showing commitment to keep China's growth from stalling.

Premier Wen has vowed to focus more on increasing growth after trade and domestic demand were below forecasts in April, data that prompted economists to pare outlooks for the world's second largest economy.

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In a research note published yesterday, Credit Suisse analyst Dong Tao said there are strong reasons to believe that the Chinese government has started a new round of fiscal stimulus.

Last week, the central government unveiled a 2 trillion yuan ($315 billion) credit line to the Ministry of Railways, 170 billion yuan in subsidies to environmental projects and about 78 billion yuan in support to social-housing projects, according to Credit Suisse.

Local governments were also encouraged to submit infrastructure project proposals for approval before the end of June, with the government promising to speed up funding support.

According to Credit Suisse, the government's efforts may help to lift expansion in the second half to a range of 8 percent to 8.6 percent.

Tao noted:

These policy stimuli can hold the slide in growth and investment demand, but probably not enough to stage a 2009-style rebound. The central government is likely to play a bigger role in funding, in contrast to last time in 2009 where the local governments relied on bank lending for funding almost entirely.

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