The Chinese stock market fluctuated on Thursday after government data showed that inflation accelerated in September while economic growth slowed down in the third quarter.

Analysts said that while the economic data was largely in line with expectations, the market fluctuation reflected investors' uncertainty about whether extra tightening measures will be rolled out after the central bank raised the interest rate to tame inflation and prevent asset bubbles.

The benchmark Shanghai Composite Index declined 0.68 percent to close at 2983.53 points, after the National Bureau of Statistics (NBS) released a slew of key economic data including third quarter GDP that rose 9.6 percent and consumer prices that rose 3.6 percent in September.

"The data showed that the economy in general is performing as expected," said Zhang Zhi, market strategist at Qilu Securities. "But the market fluctuations reflected investors' uncertainty about whether there will be more rate hikes in the coming months."

China's inflation rate accelerated in September to the fastest pace in 23 months. That news revived fears about growing asset bubbles and inflows of international hot money attracted by the stronger yuan.

Zhou Xiaochuan, the country's central bank governor, said that China still faces inflationary risks and asset bubbles, and that preventive measures are needed.

Zhou said that China needs to watch risks of cross-border capital flows and warned that the country had to cope with expanding bank loans.

"The government's monetary policy will be the key factor to watch as it is very likely to influence the market for the rest of the year," Zhang said, adding that the upward trend may continue if the money supply remains stable and liquidity sufficient.

Shares in the financial service sector fell 2.15 percent, with China Everbright Bank declining 4.89 percent to 4.47 yuan. Analysts said the decline in bank shares was triggered by profit-taking among investors as the sector faced increasing selling pressures after significant gains in the past week.

The key economic data was released two days after the People's Bank of China announced a 25-basis point hike in benchmark deposit and lending rates, the first such adjustment since December 2007.

However, the rate hike failed to dampen market sentiment as investors remained confident about China's economic strength and the policymakers' macroeconomic management.

Industrial output rose 13.3 percent in September from a year earlier while urban fixed-asset investment gained 24.5 percent in the first nine months of 2010 from last year, according to the NBS.