China's central bank on Friday unexpectedly cut benchmark interest rates for the first time in more than two years, as authorities seek to prop up flagging growth in the world's second-largest economy.

The cut comes after a string of disappointing data showing that the Chinese economy -- a key driver of global expansion -- is struggling with stalling factory growth, soft exports and a weakening property market.

China's economy expanded 7.3 percent in the July-September quarter, down from 7.5 percent in the previous three months and the slowest since 2009 at the height of the global financial crisis.

The People's Bank of China slashed its one-year rate for deposits by 25 basis points to 2.75 percent and its one-year lending rate by 40 basis points to 5.6 percent, both effective Saturday, a statement said.

The announcement was made too late for Asian markets, but gave a sharp boost to trading in Europe, where investors were already encouraged by the European Central Bank signalling its readiness to extend support to the economy to deter deflation.

London closed up 1.08 percent, Paris rose 2.67 percent and Frankfurt gained 2.62 percent.

Meanwhile, Wall Street was up moderately in afternoon New York trading.

China's interest rate cuts are the first since the summer of 2012, when the PBoC slashed rates in the month of June and then again in July.

"This is a clear 'step up' in the intensity of monetary policy easing and is likely a response to the strong headwinds from the property market correction and the limited potency of previous measures amid the highly leveraged economy," Nomura economists wrote in a reaction to the cuts.

China had since April used a series of limited measures to underpin growth, including targeted cuts in reserve requirements -- the amount of funds banks must put aside -- and a 500 billion yuan ($81.6 billion) injection into the country's five biggest banks for re-lending.

Analysts, however, said recent weakening economic indicators, including for manufacturing and industrial output, had pressured authorities to take bigger steps.

"The PBoC is forced to realise that China's economy is slowing down significantly, deflationary risk is rising fast," ANZ economist Liu Li-Gang told AFP.

China's consumer price index (CPI) was unchanged at a near five-year low of 1.6 percent in October, while the producer price index -- a measure of costs for goods at the factory gate -- declined for the 32nd straight month.

- Concerns over growth -

The decision to cut rates came a day after a closely-watched private survey showed that manufacturing activity in China stagnated in November, touching a six-month low.

British banking giant HSBC said Thursday that its preliminary purchasing managers' index reading came in at the 50.0 breakeven point.

It was lower than October's 50.4 and was the weakest since May's 49.4, according to the bank's data. A reading above 50 indicates expansion in the sector, while a reading below 50 indicates contraction.

Hu Xingdou, an economist at the Beijing Institute of Technology, told AFP that the cuts are a positive in that they "could increase liquidity and encourage economic growth" by benefitting corporations.

Mark Williams, chief Asia economist for Capital Economics, said that the main beneficiaries of the lending rate cut would be large, state-owned enterprises that take out bank loans, but added that it is unlikely to have a significant effect on economic growth.

"The financing costs of smaller firms, which borrow from the shadow banking sector, will not be affected," he said in a note.

Shadow banking refers to a vast network of lending outside formal channels and beyond the reach of regulators, including activities by online finance platforms, credit guarantee companies and micro-credit firms.

Falling prices in China's property sector are a key issue weighing on economic growth. New home prices in China declined for a sixth straight month in October, according to a private survey, though the pace of the fall slowed sharply.

Some analysts have also expressed concern about the overall health of the country's financial system.

Chinese President Xi Jinping acknowledged earlier this month in a speech to a meeting of Asia-Pacific business executives in Beijing that the economy faces financial risks, but expressed confidence they are manageable, describing them as "not that scary".