* Consumer price inflation up 2.8 pct y/y (f'cast 2.7 pct)
* Industrial output up 17.8 pct y/y (f'cast 18.5 pct)
* Pressure building but still early to raise rates -analysts
By Aileen Wang and Lee Chyen Yee
BEIJING, May 11 (Reuters) - Chinese inflation edged up to an 18-month high in April and bank lending topped expectations, but the full suite of monthly data showed an economy that was in robust health and not overheating as some have feared.
The confirmation of what some analysts have called China's Goldilocks scenario -- not too hot, not too cold -- could justify Beijing's gradual approach to tightening so far this year.
Higher interest rates and a resumption of yuan appreciation are still on the policy menu, but the government will proceed cautiously in implementing both, analysts said.
Consumer prices rose 2.8 percent in the year to April, above forecasts for a 2.7 percent rise and the highest since October 2008.
"Rising inflation is a serious problem, but it's more of an indication of where CPI is heading that is more important than this 2.8 percent," said Dong Tao, an economist with Credit Suisse in Hong Kong.
"This probably will not result in an immediate rate hike, but the central bank is getting increasingly nervous of negative real interest rates," he added.
Bank lending was also strong, with 774 billion yuan ($113.4 billion) in new local-currency loans issued last month, compared with forecasts of 570 billion yuan.
But surprising on the downside, industrial output dipped to 17.8 percent year-on-year growth. Economists had expected a rise of 18.5 percent.
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CHARTS
Lending: http://graphics.thomsonreuters.com/10/CN_LNDG0510.gif
Inflation: http://graphics.thomsonreuters.com/10/CN_CPPI0510.gif
Output: http://graphics.thomsonreuters.com/10/CN_PMI0
Retail sales chart: http://graphics.thomsonreuters.com/10/CN_RTSLS0510.gif
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EASY DOES IT
Tom Orlik, an economist with Stone & McCarthy Research Associates in Beijing, said that memories of how over-tightening led to a property collapse in 2008 would deter the government from making more aggressive moves to slow economic activity.
"China's leaders will likely want to see how the targeted measures play out, before following up with an increase in interest rates," he wrote in a note.
Global uncertainties, particularly sovereign debt worries in Europe, will also feed into their calculus.
"With the Greek cloud still casting a shadow over the prospects for external demand, Beijing has little incentive to accelerate the tightening schedule," Orlik said.
Data on Monday showed that China returned to familiar territory by posting a trade surplus in April, but exports only narrowly topped imports, providing limited comfort for policymakers fearful of another round of global economic turmoil. [ID:nTOE649026]
The People's Bank of China has raised banks' required reserves three times this year and stepped up drainage of cash via open market operations, while regulators have given banks strict orders to rein in their issuance of loans.
In contrast to regional neighbours such as India, Malaysia and Australia, China has so far eschewed the blunter instrument of higher borrowing costs, not least because Beijing harbours doubts about the solidity of the global recovery and has an eye on the all-important property market.
In practice, China has been gradually normalising its monetary stance after it pumped an extraordinary flood of cash into the economy last year to power it through the global slump.
In the recent words of deputy central bank chief Hu Xiaolian, the policy emphasis is now on "appropriately", not "easy".
As ginger as the tightening has been, the impact on the stock market has been profound. The main Shanghai index <.SSEC> has fallen nearly 22 percent since August of last year. (Additional reporting by Langi Chiang; Writing by Simon Rabinovitch; Editing by Ken Wills) ($1=6.826 Yuan)