* S'pore Q1 GDP grew 8.5 pct y/y vs consensus of +6 pct
* Better-than-forecast Q1 GDP follows strong China trade
* Singapore tightens monetary policy, ups inflation view
* Singapore dollar jumps to fresh record high (Recasts to lead with GDP)
By Kevin Lim
SINGAPORE, April 14 (Reuters) - Singapore tightened monetary policy on Thursday as it reported a stellar first quarter for the economy, another sign of strength in a region that is driving global growth while also stepping up the fight against inflation.
The Singapore dollar shot to a record high after the Southeast Asian city-state reported growth of 8.5 percent year-on-year in the first three months of 2011, far above the forecasts of 10 economists polled by Reuters. [ID:nL3E7F70EQ]
On a seasonally adjusted quarter-on-quarter annualised basis, the economy grew a breakneck 23.5 percent, the fastest pace since April-June 2010, Singapore's Ministry of Trade and Industry said.
"GDP growth was stronger than our expectations, largely because of stronger manufacturing growth of 13.9 percent, against January-February growth of 7.7 percent," said Bank of America Merrill Lynch economist Chua Hak Bin.
"This suggests manufacturing surged in March, despite Japan's earthquake," he added.
The MAS said tighter policy would continue to restrain prices, but added that inflation this year will likely remain elevated and come in at the upper half of its 3-4 percent forecast range.
Singapore's speedy growth should be a bellwether for other emerging economies in the region and comes on the back of strong economic data from China.
China said on Thursday that March power consumption rose 13.4 percent from a year ago, while first quarter trade numbers out recently showed a sharp jump in exports and imports by the world's second-largest economy. [ID:nL3E7FE054] [ID:nL3E7FA00N]
In stark contrast, Japanese corporate confidence plunged by a record in April and is seen worsening further after last month's earthquake and tsunami devastated Japan's northeast and triggered a nuclear crisis, a Reuters poll showed. [ID:nL3E7FD3IS]
"Business sentiment deteriorated sharply as expected, as manufacturing activities in not only the quake-hit region but other areas completely stopped after the quake," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
"Although some production has resumed, the level of capacity utilisation remains low, suggesting companies will remain pessimistic for some time."
The resilience of Asia outside Japan should also help offset any drag from the United States, where recent disappointing data has seen forecasts for first-quarter growth nudged lower.
TIGHTENS POLICY
Singapore modestly tightened monetary policy by sanctioning an immediate rise in the value of its dollar to record highs, becoming just the latest Asian nation to use currency strength to fight commodity-driven inflation.
The Singapore dollar -- the world's 12th most actively traded currency -- rose to an all-time high of S$1.2452 against the U.S. dollar on the news. It was trading around S$1.2555 before the central bank released its half-year monetary policy statement.
The authority re-centered its exchange rate policy band upwards, although to below the prevailing nominal effective exchange rate. It also left the slope and width of the band unchanged.
"They have raised the inflation forecast for this year, so the tweaking of monetary policy is appropriate, given that it looks that the economy may perform better than expected and therefore exert stronger pressure on the inflation front," said Song Seng Wun, a senior economist at CIMB.
The Monetary Authority of Singapore (MAS) conducts policy by managing the value of the local dollar against a basket of other currencies, which it deems as more effective than setting interest rates given the city-state's high level of imports.
The Singapore dollar had already gained close to 2 percent against the dollar so far this year prior to Thursday's policy statement, hitting a series of record highs as MAS and many other Asian central banks allow their currencies to appreciate to contain imported inflation.
Singapore's annual inflation spiked up to 5.5 percent in January, far higher than analysts' expectations, but moderated somewhat to 5.0 percent in February.
MAS's policy surprised some economists who had expected a re-centering at the currency's current level, which would have been more aggressive. Yet analysts still expected further gains in the local dollar from here.
"At this juncture, we will still be keeping our year-end dollar-sing forecast at 1.22," said Emmanuel Ng, fx strategist at Oversea-Chinese Banking Corp.
MAS said its policy adjustment took into account the tighter policy stance adopted in April and October last year, which will continue to have a restraining effect on the economy and prices.
Nine of 12 economists polled by Reuters before the meeting had predicted Singapore would tighten policy in some way at the review. [ID:nL3E7F11KT]
Asia's central banks are grappling with rising inflation even as high oil prices threaten to slow global economic growth.
South Korea's central bank revised its 2011 inflation forecast upward on Wednesday, a day after keeping interest rates steady, while Indonesia on Tuesday said it was letting the rupiah rise as part of efforts to contain inflationary pressures. [ID:nL3E7FC36I][ID:nL3E7FC14S]
Market watchers were divided on whether Singapore will tighten policy further in October but most said other Asian countries will likely have to raise interest rates further in coming months.
"MAS and Malaysia's central bank were early starters when it came to tightening monetary policy in 2010. Most other Asian central banks started later, and they still have got more work to do throughout 2011," said Endre Pedersen, managing director for Asia fixed income at Manulife Asset Management in Hong Kong. (Additional reporting by Jongwoo Cheon and Singapore bureau; Editing by Raju Gopalakrishnan)