Singapore’s growth rebounded last quarter as manufacturing surged, capping the biggest annual increase in output since independence in 1965 and putting the economy on course to be the world’s second-fastest growing.

Gross domestic product rose an annualised 6.9% in the three months through Dec. 31 from the previous quarter, when it contracted a revised 18.9%, the trade ministry said in a statement today. The median forecast of eight economists surveyed by Bloomberg News was for a 9.4% expansion.

Singapore’s growth has fuelled inflation, prompting policy makers to allow faster currency gains and take steps to cool the property market. The island is among the first in the region to report fourth-quarter data, and its expansion may herald a year in which Asia will sustain an outperformance over developed markets hampered by Europe’s sovereign credit woes and U.S. unemployment that remains above 9%.

“If Asia continues to lead growth, and the likelihood is that it will, then it would mean we would see stronger currencies around the region,” Song Seng-Wun, an economist at CIMB Research Pte. in Singapore, said before the report. “If inflation continues to build up, the monetary policy bias for most central banks including Singapore’s is to tighten further.”

Most currencies in Asia rose against the U.S. dollar last year, led by the Malaysian ringgit and the Thai baht. The Singapore dollar climbed more than 9% against the U.S. currency last year, its biggest one-year gain since 1994. The currency was little changed at $1.2827 versus the greenback at 7:53 a.m. today.

Policy Tightening
The Monetary Authority of Singapore said in October it would steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation,” after undertaking a one-time revaluation in April. The central bank, which uses the exchange rate rather than interest rates as its main tool to manage inflation, guides the Singapore dollar against a basket of currencies within an undisclosed band.

The Singapore central bank predicts inflation will average between 2% and 3% this year. Consumer prices rose 3.8% in November, the biggest increase in 22 months.

The 10 main Asian central banks outside Japan will raise rates 24 times by June after 21 increases in 2010, when “they could have and should have done more,” according to David Carbon, head of economic and currency research at DBS Group Holdings in Singapore. China boosted its key rate twice last quarter while India raised borrowing costs six times in 2010.