Singapore’s growth rebounded last quarter as manufacturing surged, capping the biggest annual increase in output since independence in 1965. Stocks rose.

 

Gross domestic product rose an annualized 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 is on course to be the world’s second-fastest growing economy, adding to inflation pressures that have prompted policy makers to allow faster currency gains and take steps to cool the property market. The expansion may signal Asia will in 2011 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.”

 

Singapore’s stocks rose after the report, with the benchmark Straits Times Index rising 1% as of 9:32 a.m. local time.

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 in 2010, its biggest one-year gain since 1994. The currency was little changed at S$1.2858 versus the greenback at 9:33 a.m. today.

 

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.

 

“Inflation will likely be a major challenge and risk in 2011,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. He expects the government to boost the numbers for fourth-quarter and 2010 growth next month, when it gives final estimates for the year.