Asia-focused bank Standard Chartered plans to launch its first China village bank in early 2008 to tap the country's growing rural economy, sources close to the situation said on Wednesday.

London-based StanChart's first China village bank is expected to be based in Inner Mongolia, where farming, mining and dairy are the three major contributors to the local economy, said the sources, who declined to be identified.

The Chinese government is trying to stimulate investment in the countryside to reduce a rising income gap with the cities, but most rural residents and businesses have great difficulty accessing credit.

StanChart, an emerging markets specialist that won China's approval for local incorporation this year in the nation's long-restricted banking market, is now hiring managers and staff for the Inner Mongolia-based village bank, the sources said.

In August, StanChart's bigger rival, HSBC Holding Plc , launched a village bank in the central Chinese province of Hubei after winning the first such bank licence given to a foreign bank.

A StanChart spokeswoman said the bank was preparing for such a village bank and was certainly interested in China's rural banking market, but she declined to comment further.

Village banks are one of three kinds of new rural financial institutions that regulators are cautiously encouraging - for example by relaxing capital requirements.