China, the world's second-biggest oil-consuming nation, unexpectedly raised gasoline and diesel prices by at least 17 percent and increased power tariffs to rein in energy use, potentially driving up inflation.

The record price increase, the first since November, may ease refining losses at China Petroleum & Chemical Corp. and PetroChina Co., who have been forced to sell fuels below cost. The companies' shares rose in Hong Kong trading.

Crude oil futures fell the most in 11 weeks in New York yesterday on speculation the increase, earlier and larger than analysts had forecast, will cut demand. China will pay 19.8 billion yuan ($2.9 billion) in subsidies to help farmers, fisherman and public transport operators cope with higher costs.

``This pushes inflation up in China but contributes to easing inflationary pressure elsewhere in the world,'' Merrill Lynch & Co.'s head of global commodities research, Francisco Blanch, said by phone yesterday.

Gasoline will increase 17 percent today, diesel will rise 18 percent and jet fuel will climb 25 percent, the National Development and Reform Commission said yesterday. On July 1, China will raise power prices by an average 4.7 percent and cap thermal coal prices until the end of this year.

The price increases may boost China's inflation rate by as much as 1 percentage point this year, according to seven economists surveyed by Bloomberg News today. Their estimates of the likely boost to consumer prices ranged from 0.13 percentage point to 1 percentage point.

Jeddah Meeting

The decision follows similar increases in India, Malaysia and Indonesia and comes before oil suppliers and consumers meet in Jeddah, Saudi Arabia, on June 22 to discuss the 94 percent gain in crude oil prices in a year.

After the increase, official Chinese diesel and gasoline prices remain below $3 a gallon, a discount of more than $1 to unregulated prices in Singapore, Lehman Brothers Holdings Inc. said in a report.

The average U.S. price of regular unleaded gasoline was $4.07 a gallon on June 18, according to the American Automobile Association. Gasoline in India costs about $4.44 a gallon.

China's gasoline prices remain 31 percent below international import parity, diesel 38 percent below and jet fuel, 30 percent, Goldman Sachs Group Inc. said in a report.

Transportation Costs

Transportation costs, including bus and taxi fares, won't rise, the commission said. The government will pay subsidies to transport operators, fisherman and farmers, the finance ministry in Beijing said today.

The government wants to ease the impact of more expensive fuel in a nation where just 3.3 percent of its 1.3 billion people own cars.

Sinopec, as China Petroleum, Asia's largest refiner, is known, rose as much as 5.9 percent in Hong Kong. PetroChina gained as much as 5.8 percent.

The price increase came earlier and was bigger than expected, said Goldman, which had expected China to wait until Sept. 1, after the country hosts the Olympic Games. Lehman Brothers described it as `` Beijing's surprise.''

The increases are China's largest ever, said Gong Jinshang a senior researcher at China National Petroleum Corp., the nation's largest oil company.

Benchmark oil prices in New York dropped $4.75, or 3.5 percent, yesterday, the biggest decline since March 31. Oil, which traded at $132.05 a barrel at 11:17 a.m. in Beijing, touched a record $139.89 on June 16.

May Boost Demand

Some parts of China have experienced fuel shortages and rationing, and the price increases would improve domestic supplies, the commission said.

Higher oil-product prices may encourage rather than trim demand, Goldman said. ``We would argue the price hike could lead to normalization of supply versus the recent rationing of sales at the pump.''

Refineries have cut output to avoid widening losses caused by the state price caps. Crude oil processing fell 1.1 percent from a year earlier in May, the statistics bureau said this week.

Electricity prices for households, farmers and chemical fertilizer producers won't rise, nor will tariffs in areas worst affected by last month's earthquake, including the provinces of Sichuan, Shaanxi and Gansu, the commission said yesterday.

The May 12 earthquake that struck southwestern China was the nation's most powerful in 58 years. The temblor disrupted transportation links and power supplies and killed about 70,000.

Energy Curbs

China must cut energy use by at least 5 percent for every unit of gross domestic product annually for the next three years to meet its 2010 target, Yang Tiesheng, director of the commission's energy efficiency division, said at the Energy Efficiency Asia conference in Beijing yesterday.

China has scope to raise fuel prices further, the nation's largest investment bank said.

HOSE