China's new lending in May exceeded analysts' estimates and money-supply growth accelerated, aiding Premier Wen Jiabao's efforts to reverse a slowdown in the world's second-biggest economy.

Local-currency loans were 793.2 billion yuan ($125 billion), the People's Bank of China said on its website on Monday. That compared with the 700 billion yuan median forecast in a Bloomberg News survey of 29 economists and 681.8 billion yuan in April.

M2, a broad measure of money supply that covers cash in circulation and all deposits, grew 13.2 percent last month from a year earlier, compared with an estimate of 12.9 percent.

The growth in M2 money supply compared with a 12.8 percent increase in April.

Government efforts to bolster growth have included cuts in interest rates and bank reserve requirements, as well as delays in tightening lenders' capital requirements.

Citigroup Inc said on Monday that the central bank has signaled "aggressive" monetary easing that may include two more interest-rate reductions this year.

"China's economy is still on a downward trend," Citigroup economist Ding Shuang, who formerly worked for the PBOC, told Bloomberg Television in Hong Kong on Monday ahead of the release.

"We do not see a clear turning point yet, and policy support is very much needed in order to stabilize growth."

The economy's expansion this quarter may be "very weak" at 7 to 7.5 percent, Ding said after the government announced data for industrial production, inflation, fixed-asset investment and exports over the past two days.

The better-than-forecast trade growth last month may not be sustained as the European Union is likely to enter recession, restraining demand, he said.

The yuan was little changed after the loan figures were released. The currency gained 0.02 percent to close at 6.3694 per US dollar in Shanghai.

Ahead of the data, the Chinese mainland stocks rose the most in almost two weeks on the trade figures easing inflation that provides leeway to loosen monetary policy further.

"The May economic data are a little better than expected and the government will continue to loosen policies, given these figures are still at relatively weak levels," Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co, said on Monday.

The central bank cut borrowing costs last week for the first time since 2008 and loosened controls on banks' ability to set loan and deposit rates, stepping up efforts to combat a domestic slowdown.

The rate-cut announcement came two days before a government report showed inflation in May eased to 3 percent, the lowest in two years, and industrial output and retail sales growth trailed forecasts, adding to signs of moderating domestic demand.

"The decision to cut interest rates on Thursday indicates that authorities are indeed concerned about the growth slowdown and serious about easing policies," Zhang Zhiwei, Hong Kong- based chief China economist at Nomura Holdings Inc, said before the release.

"The PBOC will cut the reserve requirement ratio in July to further boost liquidity."

Lower borrowing costs should stimulate demand for loans, Sheng Nan, a Hong Kong-based analyst with CCB International Securities, said.

At the same time, banks including Industrial & Commercial Bank of China Ltd and Agricultural Bank of China Ltd may see their profitability weakened as they are forced to raise deposit rates to compete for savings.

China's economy expanded 8.1 percent in the first quarter from a year earlier, the slowest pace in almost three years.

Bloomberg News