1st LD-Writethru: China's new yuan loans shrink unexpectedly in July

China's new yuan-denominated loans in July dropped substantially, falling short of market expectations, as loans to businesses shrank unexpectedly, official data showed on Friday.

New loans stood at 464 billion yuan (nearly 70 billion U.S. dollars), down 1.01 trillion yuan from a year earlier and also lower than the 1.38 trillion yuan registered last month, according to the People's Bank of China website.

The figure missed market forecast of around 800 billion yuan and was at the lowest level in two years.

The slow credit expansion could be partly attributed to the fact that loans to non-financial companies fell 2.6 billion yuan, in sharp contrast with 4.53 trillion yuan increase in the first half of the year.

Banks were cautious in making loans to businesses in fear of an economic downturn, analysts said, but encouraged by robust housing market, especially in large cities, home loans increased by 458 billion yuan.

M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 10.2 percent year on year to 149 trillion yuan by the end of July. The growth was the second slowest since 1996.

However, the narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, maintained steady expansion, up 25.4 percent year on year to 44.3 trillion yuan.

The data reflected businesses' reluctance to invest or pay their debts, a report by investment bank CICC said.

Economic indicators released Friday suggested China's growth remains slow.

The pace of fixed-asset investment slipped to 8.1 percent in the January-July period, the lowest growth in over a decade, and growth of industrial production and consumption also softened.

The central bank data also showed newly-added social finance, a gauge of funds that firms and households get from the financial system, only stood at 488 billion yuan, down 263 billion yuan from a year earlier and the lowest in two years. Endi