China announced an increase in interest rates Tuesday, for the third time since mid-October, in an effort to curb inflation.

A teller counts banknotes at a bank in Linyi, east China, on January 25. China announced an increase in interest rates Tuesday. (Zhang Chunlei/Associated Press/Xinhua)

The People's Bank of China announced on its website that the one-year deposit rate would rise by a quarter of a percentage point to three per cent and the one-year lending rate would increase by the same amount to 6.06 per cent.

Both increases take effect on Wednesday.

China's leaders have sought to cool surging inflation that could pose a threat to political stability.

Rising prices are especially sensitive in a country where poor families can spend up to half their incomes on food.

Prices increases have been staying well above the government's target of three per cent. Inflation rose to 5.1 per cent — a 28-month high — in November.

Investors worry that China's effort to slow growth could affect demand for commodities, iron ore, machinery and other goods. It is the world's biggest consumer of energy, industrial metals and soybeans.

Oil and copper prices fell on the news, with the March crude contract on the New York Mercantile Exchange closing down 54 cents to $86.88 US a barrel and the March copper contract losing 0.1 cent to close at $4.574 US a pound.

In Toronto, the S&P/TSX composite index was 80.59 points higher at 13,892.52 and the loonie traded down .45 of a cent to 100.54 US.

With files from The Associated Press