BEIJING - China's bond market is starting to show renewed inflation concerns ahead of a report that will probably show the economy grew 10.2 percent last year, the fastest pace since 2007.

Ten-year debt yielded 71 basis points more than two-year notes on Monday, up from 48 on Jan 4, a steepening of the so-called yield curve that followed a record decline last month.

December's inflation cooled to a pace of 4.6 percent, from a 28-month high of 5.1 percent in November, according to the median forecast in a Bloomberg News survey of 27 economists before the Jan 20 report. The economy expanded 9.4 percent in the fourth quarter, the poll showed.

China's yield curve flattened by 72 basis points in December, even as that for US bonds widened by 36 to 270 on optimism the global economy is recovering.

"Yields will rise across all terms because inflation will accelerate and the central bank may continue raising interest rates," said Lin Hongjun, a fund manager in Shanghai at Bank of Communications Schroders Fund Management Co, the London-based asset manager's Chinese joint venture that oversees 57.1 billion yuan ($8.7 billion).

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The yield on China's 3.77 percent government bond due in December 2020 rose four basis points to 3.95 percent on Monday, according to data compiled by Bloomberg. It climbed to 3.98 percent on Tuesday and is up seven basis points this year. The two-year yield fell 16 basis points this year to 3.24 percent as of Monday's close, reflecting an easing credit crunch. A basis point is 0.01 percentage points.

The median forecast for growth is near to the 9.6 percent pace of the previous three months. Inflation may rebound to as much as 6 percent during the first half of this year, according to HSBC Holdings Plc and Citigroup Inc.

Food costs climbed 11.7 percent in November from a year earlier and property prices rose 6.4 percent in December.

"2011 will be the year of inflation," said Qu Hongbin, co-head of Asian economic research at HSBC in Hong Kong. "China's key task in the first half will be to tackle inflation by tightening monetary policies, along with measures to ensure the supply of agricultural products and curb the property market."

"Too-rapid growth and overheating" are the biggest risks this year, Yao Jingyuan, chief economist at the National Bureau of Statistics, said on Sunday.

China's quarter-on-quarter expansion may have accelerated between October and December as credit growth supported investment, according to Mark Williams, a London-based economist at Capital Economics Ltd who worked at the UK Treasury as an adviser on China from 2005 to 2007. "With bank lending still apparently strong at the beginning of 2011, we would expect the momentum to carry over."

Bloomberg News