The official media said the bank's annual lending rate would fall from 6.93 per cent to 6.3 per cent while deposit rate would be reduced on an average from 4.77 to 3.78 per cent.

The rate cut, third this year, is aimed at ``encouraging investment in housing and infrastructure, boosting internal demand and maintaining a strong and healthy growth in gross domestic product,'' a bank official was quoted as saying.

China's central bank, the Peoples Bank of China (PBOC) last cut interest rates on July 1 and today's reduction is only the sixth decrease since 1996.

The central bank said interest rate cuts in the past has had a positive effect in counteracting the current financial turmoil in some Asian countries and the effects of the devastating summer floods in parts of China this year.

Along with the rate cuts on savings andlending, the PBOC also announced reserve deposit and relending rates would be reduced. Deposit rates on average will be cut 0.5 per cent, but current account and three-month fixed deposit rates would not be affected.

One-year fixed deposit rates would be cut from 4.77 per cent to 3.78 per cent, with similar cuts made on similar deposit periods.

Working capital lending rates also would be cut on average by 0.5 per cent, with one-year working capital rates dropping from 6.93 per cent to 6.3 per cent.

PBOC reserve deposit rates were cut from 3.51 to 3.24 per cent, and relending rates were cut from an average of 5.61 per cent to 5.06; discount rates were also cut to 3.96 per cent.

The central bank said the new rate cuts were tied to the latest round of reductions on interest rates by developed countries, giving China room to lower its rates.

The interests of enterprises, individuals, and commercial banks as well as the balance between interest rates of the Chinese currency and foreign currencies havebeen taken into consideration, the central bank stated adding it had asked finance institutions to abide by the regulations.

PBOC has predicted the latest cuts will be important in increasing money supply next year, lowering operating costs of industrial and commercial firms,and increasing the amount of consumer loans, domestic consumer demand and exports to achieve rapid and healthy economic development.

The main beneficiary of the interest rate cuts will be the struggling state-owned enterprises, analysts said adding within a year, enterprises may save 23 billion yuan (about 2.77 billion US dollars) in interest payments due to the cuts.

``Next year China's economy will face several difficulties and this interest rate cuts reflects the importance of PBOC policy to advance economic growth,'' the central bank said.

Latest estimates put this year's economic growth at about 7.6 per cent compared with 8.8 per cent last year, while exports are expected to remain unchanged compared with a steep rise of over20 per cent last year.

In a bid to stimulate sluggish domestic demand, China has announced a three-year programme of infrastructure development worth 750 billion u.S. Dollars.