China is the world's biggest consumer of steel

Industrial output was up by 16.7%, the National Bureau of Statistics said, with strong increases in iron ore, steel products and coal.

While the rise is below June's annual growth of 19.5%, analysts still predict strong growth ahead.

The slight fall suggests measures to tighten China's economy are beginning to show results, analysts say.

'Encouraging'

"There are some signs that the central bank tightening [economic policy], which has been in place for the last few months, is showing some effect," said Prakash Sakpal, an economist at ING Barings.

To temper economic growth and prevent inflation, China's central bank has embarked on a series of measures, including raising interest rates in April.

"It is certainly very encouraging," said Huang Yiping, a Citigroup economist.

As China expands economically, its quest for raw materials has expanded dramatically.

China, which is the world's second largest consumer of oil, saw oil production in July increase by 1.9% from a year earlier. Meanwhile, steel product output was up 22.5% and iron ore production rose 33.7%.

The Asian giant is already the world's biggest consumer of steel, copper, aluminium, cement, iron ore and zinc.

In a separate report on Tuesday, the World Bank raised its forecast for China's economic growth for 2006.

The bank sees China's economy growing by 10.4% this year, an increase from its previous estimate of 9.5%.

On Monday, China posted figures showing that year-on-year retail sales were 13.7% higher in July, thanks largely to higher incomes, the National Bureau of Statistics said.