SHANGHAI - Gold demand in China increased by 26 percent year-on-year in the second quarter, spurred by a robust increase in retail investment demand for the yellow metal, the World Gold Council (WGC) said on Wednesday.

China's gold demand in the April-June period reached 111.7 tons, making the nation the world's second-largest consumer of the precious metal after India, said Wang Lixin, WGC general manager in China.

In the second quarter, 48 percent of China's gold demand was from retail investment, which was 25.4 percentage points higher than a year earlier.

"China outperformed all other countries in the world in terms of the growth rate in the retail investment volume for the metal," Wang said.

Total global gold demand from April to June jumped 36 percent from the previous year to stand at 1,050 tons, largely reflecting strong demand compared with the second quarter of 2009, WGC said.

China and India were the major drivers of the world gold market during that period, said Albert Cheng, managing director of WGC Far East, adding that "China was among the strongest retail investment markets and continued to deliver strong growth in jewelry demand".

China's strings of measures to curb its property market and mounting inflation concerns over the past months have caused a buying spree for bullion in China, as it is seen as a safe haven by investors.

Gold futures on the New York Mercantile Exchange have increased 12 percent so far this year, reaching an all-time high of $1,266.5 per ounce this June, as investors' enthusiasm for the metal was fueled by the faltering global economic recovery.

In the longer term, demand for gold in China is expected to grow considerably, the WGC said in a report released on Wednesday.

China released guidelines earlier this month on encouraging the development of the domestic gold market which will likely result in increased investment in gold, and will in turn help increase the domestic gold market's liquidity, Cheng said.

"It will largely benefit gold investors when the market is better regulated," he said.

The world's gold market, which has been expanding for the past decade, will maintain its growth momentum, Cheng said, adding that "the market's fundamentals remain solid without bubbles".

"Demand for gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing global investment demand driven by continuing uncertainty over public debt and economic recovery," the WGC said.