Gross domestic product  rose 7.9 percent in the fourth quarter from a year earlier, the National Bureau of Statistics said in Beijing today. That compared with the 7.8 percent median estimate in a  Bloomberg News  survey and 7.4 percent in the previous period. Industrial output in December rose a more-than- expected 10.3 percent and fixed-asset investment for the year gained 20.6 percent.

  The rebound may gather pace in the first half as infrastructure projects are rolled out and the housing market picks up, a boost for new leaders who are set to take office in March. Incoming Premier  Li Keqiang  may face a tougher second half as stimulus effects fade, a likely acceleration in inflation encourages monetary tightening and regulators grapple with shadow-banking risks.

“China is in a cyclical recovery and we can see that the recovery will continue into the first and second quarters, but what happens after that is quite uncertain,” Yao Wei, China economist with Societe Generale SA, said before the report. “What happens to the  property market  is the biggest upside and downside risk, while the rise in non-bank financing may lead regulators to tighten -- we can’t simply assume policy will get easier from now on.”

Raised Forecast

Hong Kong-based Yao, ranked by Bloomberg as the most accurate  forecaster  for quarterly GDP, had forecast 7.9 percent for the quarter. She raised her estimate for expansion in the first three months of 2013 to 8.2 percent from 7.8 percent and for the second quarter to 7.9 percent from 7.5 percent, according to a note released yesterday. She expects momentum to fade in the second half, with growth slowing to 7.4 percent in the fourth quarter.

The economy expanded 7.8 percent for the full year, the least in 13 years, according to statistics bureau data, compared with the 7.7 percent median estimate in a Bloomberg survey of 32 economists. Growth may pick up to 8.1 percent this year, according to analysts polled by Bloomberg in December.

Outgoing Premier  Wen Jiabao  set a 2012 target of 7.5 percent in March, the lowest goal since 2004. The government will keep the target at 7.5 percent this year, Bloomberg News reported on Dec. 18, citing two bank executives and a regulatory official briefed on the matter.

Stocks Increase

Improving investor confidence in China’s outlook has lifted mainland stocks and the currency. The  Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, has advanced 17 percent as of yesterday from an almost four-year low on Dec. 3. It was 0.7 percent higher at 10:02 a.m. local time today.

The  yuan  has appreciated 0.23 percent against the dollar this year as of yesterday, the best start since 2009, on signs China’s growth is accelerating. The currency touched 6.2124 per dollar on Jan. 14, the strongest level since the government unified the official and market exchange rates at the end of 1993.

The increase in  industrial production  compared with the 10.2 percent median forecast in a Bloomberg survey of 44 analysts and was the fastest pace since March. Retail sales climbed 15.2 percent from a year earlier, compared with the median analyst estimate of 15.1 percent and a 14.9 percent increase the previous month.

Fixed-asset investment excluding rural households  for the January-to-December period compared with a 20.7 percent gain in the first 11 months of the year.

Easing Pause

The central bank has paused from its monetary easing since July after two interest-rate cuts and three reductions in lenders’ reserve  requirements  starting in November 2011. At the same time, the government has accelerated investment-project approvals, trimmed fees for exporters and increased spending on infrastructure.

The investment is helping companies including China Railway Group Ltd., which said this week that it won 11 contracts valued at 29.8 billion yuan ($4.8 billion) to build urban railways, bridges and other infrastructure.

The growth rebound may support China’s new leadership headed by  Xi Jinping  as it tries to balance the need to create jobs and maintain social stability with a pledge to overhaul the economy and spread the benefits of the nation’s growth more equally. Xi and Communist Party No. 2 Li Keqiang, set to become premier in March, have signaled a shift in priorities for the world’s second-biggest economy that will entail higher “quality and efficiency” of expansion.

The cost of average annual expansion of more than 10 percent over the past decade was exposed this month when smog engulfed a swath of northern China, including the capital, Beijing, prompting calls from official media for government action to improve the environment.

Li called for the nation’s citizens to have patience as authorities work to reduce pollution and said that “solving this problem will also be a long-term process.”

--Nerys Avery, Zheng Lifei. With assistance from Ailing Tan in  Singapore, Fion Li in  Hong Kong, Zhang Dingmin in Beijing and Sunil Jagtiani in  New Delhi. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff on this story: Nerys Avery in Beijing atNavery2@bloomberg.net  Zheng Lifei in Beijing at  lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at  ppanckhurst@bloomberg.net