The hike meant the average maximum price Chinese retailers were allowed to charge was now higher than the average paid by American motorists, triggering concerns about the impact on the economy.

"It is uncertain how well it will do because a too-fast increase could hurt demand in many industries when the economy is weak," said He Jun, an analyst with Beijing-based investment consultancy Anbound.

The surprise increase is part of efforts to bring the government-set prices closer in line with international market conditions and prevent Chinese refiners from having to sell products at a loss.

The average maximum retail price for gasoline was increased by 8.7 percent to 7,530 yuan (1,100 dollars) per tonne, according to a statement from the National Development and Reform Commission, the top planning agency.

China's average maximum gasoline price was raised to 3.10 dollars per gallon, compared to an average of about 2.65 per gallon paid by US consumers last week.

The price for diesel was raised by 9.7 percent to 6,790 yuan per tonne, the statement said.

The increase comes after a rise of six to seven percent in gasoline and diesel prices on June 1.

It is the fourth rise since China announced a new fuel pricing system towards the end of 2008.

Some warned the unexpected hike, which raised retail fuel prices in most of China to levels last seen in mid-2008 when the crude prices were at historic highs, could stifle demand and hurt the tentative economic recovery.

"It was indeed a big increase. But we think such a big increase is problematic," said Anbound's He.

In May China's exports plummeted for a seventh straight month but industrial output and retail sales growth both accelerated from previous months, as Beijing's stimulus measures kicked in.

"The recovery is at a sensitive stage. The price hike will negatively impact many industries such as automobile, tourism, logistics. You really should not pour cold water on a person who just survived a serious illness," He said.

Crude oil futures plunged from record highs of more than 147 dollars in July 2008 to about 32 dollars in December as the economic downturn hit energy demand. But prices have since clawed back from lows due to recovery hopes.

In early Asian trade on Tuesday, New York's main contract, light sweet crude for August delivery, was 1.08 dollars higher at 72.57 dollars a barrel, while Brent North Sea crude had jumped 1.21 dollars to 72.20.

Analysts said the increase showed the government is committed to the new pricing system and helping ensure stable refining profit margins for domestic oil giants.

China said in May that it may adjust domestic fuel prices when the moving average of a basket of international crudes changes more than four percent over a period of 22 working days.

The new system also includes clauses to guarantee refiners a five percent profit margin as long as international crude prices are below 80 dollar a barrel.

"With stable profits from the refining operations, policy-related losses, which have plagued China's petrochemical industry over recent years, would no longer exist," said Deng Yong, an analyst with Haitong Securities.

Sinopec and PetroChina -- the two domestic oil giants -- saw their refining businesses suffer heavy losses in 2007 and 2008 because the government capped domestic fuel prices at artificially low levels.

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