China vows policy stability as it backs euro

China will stick with the policies that cooled economic growth last quarter and will keep faith with the euro despite Europe's debt woes, Premier Wen Jiabao said on Friday.

"We will maintain policy continuity and stability and continue to put into effect a proactive fiscal policy and an appropriately loose monetary policy," Wen told a joint news conference with visiting German Chancellor Angela Merkel.

Wen was speaking a day after China reported a moderation in annual gross domestic product growth to 10.3 per cent in the second quarter from 11.9 per cent in the first three months of the year.

The premier attributed the slowdown to his government's macro-economic controls, which include steps to limit lending to property developers, home buyers and indebted local governments.

Wen offered his support to the eurozone, which is battling to regain investor confidence after Greece had to be bailed out in April by the single currency bloc, fanning fears about other heavily indebted European governments.

"Everyone knows that China has abundant foreign exchange reserves. As a responsible, long-term investor, China has always upheld the principle of diversified investments.

"The European market has been in the past, is now and will be in the future one of the main investment markets for China's foreign exchange reserves," Wen said.

China supports the economic stabilisation efforts being made by European governments and hopes they will succeed in nursing their public finances back to normal as soon as possible, the premier said.

China does not disclose the currency composition of its $2.45 trillion stockpile of reserves, the world's largest, but bankers assume that perhaps two-thirds is invested in dollars with a big chunk of the remainder parked in euros.

Chinese and Greek companies signed shipbuilding and construction deals worth hundreds of million of euros last month, with the possibility of further deals to follow to help Greece overcome its debt crisis.