China stocks sag 3 pct on fears of low Aug lending

SHANGHAI Aug 28 (Reuters) - China's benchmark stock index sank more than 3 percent on Friday, led by bank stocks, after local media reports that Chinese banks' August lending may drop sharply from earlier in the year, trimming liquidity flowing into the market.

The market was also hurt by a series of announcements of new share supplies, including a $1.6 billion additional offer by property developer China Vanke 000002.SS announced on Thursday.

The Shanghai Composite Index .SSEC fell 3.2 percent to 2,851.664 points in late morning trade.

It lost 0.7 percent on Thursday but has generally held to a relatively narrow range this week in the wake of a 20-percent loss in the two weeks up to the middle of last week.

Minsheng Bank (600016.SS), China's first private-sector bank, dropped 4.57 percent to 6.47 yuan and was the morning's most active stock.

It has a plan to float shares in Hong Kong, which while not directly related to its Shanghai-listed shares, would dilute its earnings once implemented.

Local media reported that new loans extended by China's four biggest state-owned banks in August slowed sharply from July. The four, including Industrial and Commercial Bank of China (601398.SS), typically account for more than 50 percent of lending in China.

"The market now expects new lending in August by all banks will be at most a little more than 200 billion yuan," said analyst Cao Xuefeng at Western Securities in Chengdu. "The market is also jittery about huge fund-raising activities."

The lending estimate compares with an average monthly total of more than 1 trillion yuan in the first half of this year.

Cao and several other analysts, however, expected the index generally to move in a narrow range between 2,800 and 3,000 points in the near term.

They added that the decline in bank lending and influx of new share supplies were negative factors that had existed for some time but were now having an exaggerated impact in a weak market. (Reporting by Claire Zhang and Edmund Klamann)