BY TOM ORLIK AND BOB DAVIS

BEIJING—China posted GDP growth of 8.9% in the last quarter of 2011, compared with a year earlier, a number that came in higher than had been expected but one that nevertheless showed that the world's fastest engine of growth is downshifting.

China's fourth-quarter performance would be the envy of most any other nation, and markets reacted positively to the data, with the Shanghai Composite Index rising 4.2%, its biggest rise in two years. Indexes around the world—eager for any sign that China can steer its economy toward to a soft landing and help offset weakness elsewhere—also took heart from the ...