Zhou Xiaochuan gestures during a press conference on the sidelines of the ongoing session of the National People's Congress in Beijing on March 11, 2011. [Photo/Xinhua]

BEIJING - Chinese inflation levelled off in February while industrial output accelerated, tentative signs that the government is succeeding in taming price pressures without unduly harming growth in the world's second-largest economy.

Beijing is not about to declare victory in its battle against inflation, with economists warning that it could pick up sharply in the coming months. But data published on Friday lends credence to the view that it is more than midway through a sustained campaign of monetary tightening launched nearly half a year ago.

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China's consumer price inflation steadied at 4.9 percent in the year to February, the same as in January, the National Bureau of Statistics said. Although above forecasts for 4.7 percent, the reading contrasted with dire warnings a few months ago of runaway prices. Core inflation, stripped of volatile food costs, slowed.

People's Bank of China Governor Zhou Xiaochuan struck a guardedly optimistic note.

"Currently, inflationary expectations are generally stable. That is to say, if we observe the CPI (consumer price index) figures for December, January and February, although they are high, inflationary expectations are currently relatively stable," he said at a news conference during China's annual session of parliament.

Nevertheless, worries that further increases of Chinese interest rates and bank reserve requirements are inevitable in the coming months weighed on global markets, which were already reeling because of weak US economic data and unrest in Saudi Arabia. Asian equities added a touch to losses on the day, and the Shanghai stock market dipped 0.3 percent at 0315 GMT.

"Clearly, the consumer price index is stabilising, but the risk is still significantly on the upside," said Wei Yao, economist with Societe Generale in Hong Kong.

"It means the central bank will probably stay on the course of tightening," she added.