UPDATE 2-China money and credit growth rises sharply

(Adds further reaction)

By Alan Wheatley and Simon Rabinovitch

BEIJING Feb 12 (Reuters) - New lending surged at a record pace in January and money growth also perked up as Chinese banks heeded the government's call to extend more credit to support the economy.

Coming a day after grim trade figures showed plunging imports and exports, Thursday's data revived optimism among some analysts that an end to China's steep downturn might be in sight.

"The bank lending figures are just a stunningly good piece of news for China," said Glenn Maguire, chief Asian economist for Societe Generale in Hong Kong.

Banks extended a whopping 1.62 trillion yuan ($237 billion) in new loans in January, almost a third as much as they lent in all of 2008, the People's Bank of China said.

The month's total, which was in line with a report by Reuters on Monday [ID:nPEK154219], was up sharply from 771.8 billion yuan in December and 181.9 billion as recently as October.

The surge provided evidence that state-owned banks are doing Beijing's bidding and providing financing for the 4 trillion yuan stimulus package announced on Nov. 9. The central government will fund only 30 percent of the plan itself.

"This dynamic of the banks being guided to lend for the government's infrastructure projects is falling into place dramatically quickly," Maguire said.

Nearly 40 percent of January's new loans were in the form of discounted bill financing, which firms use for short-term cash needs. Some also reinvest the money, which can be borrowed for just 1.5 percent, in higher-yielding certificates of deposit.

Economists would prefer to see a larger proportion of longer-term loans funding corporate investment and public works.

But Ting Lu, an economist at Merrill Lynch in Hong Kong, said the precise type of loan was unimportant. What was crucial for the economy was that money was flowing from banks to companies and households.

"From the macro perspective, it's very expansionary," Lu said. "China is the first economy to see real credit expansion at this point in time, during this trough of the global slowdown. That differentiates China from other economies."

TOO STRONG TO LAST

Buoyed by January's surge, the stock of loans jumped 21.3 percent from a year earlier, beating forecasts of a 19.5 percent rise and well up from December's increase of 18.8 percent.

Annual growth in the broad M2 measure of money supply also quickened to 18.8 percent in January from 17.8 percent in December, handily outstripping forecasts of an 18.0 percent rise.

Investors were unimpressed, however, with the Shanghai stock market .SSEC down 2 percent an hour before the close.

Even though banks are lending freely and fewer companies are squeezed for cash, the trade figures were a sobering reminder that demand and production are still in the doldrums.

Moreover, economists said January's lending was probably inflated by banks bringing some off-balance sheet loans onto their books since the central bank scrapped quotas late last year in a bid to help the economy.

"We believe such credit growth is not sustainable and will likely slow in the next few months. Our channel checks suggest credit growth has already slowed notably after the Chinese New Year holiday, which ended on January 31," Yu Song and Helen Qiao at Goldman Sachs said in a note to clients.

And with the banking system awash in cash, the need to pump up the economy through lower borrowing costs becomes less urgent, noted Bian Xubao, an analyst with Qilu Securities in Jinan.

"Due to the surge in loans, the central bank has no need to cut interest rates right now," Bian said. ($1=6.833 Yuan) (Additional reporting by Langi Chiang; Editing by Ken Wills)