China April bank lending disappoints, money growth picks up

* April new loans 774.7 bln yuan, vs March's 1.05 trillion yuan

* April M2 up 13.2 pct yr/yr, vs 12.1 pct in March

* Data shows central bank policy largely neutral (Adds details, economists' comments)

BEIJING, May 12 (Reuters) - China's new bank lending and total social financing weakened in April, but money supply growth picked up slightly, indicating the central bank is treading cautiously in steering policy to support the slowing economy.

Chinese banks made 774.7 billion yuan ($124.39 billion) worth of new yuan loans in April, lower than a forecast of 880 billion yuan in a Reuters poll and below than the previous month's 1.05 trillion yuan, central bank data showed on Monday.

Growth in the broad M2 money supply picked up to 13.2 percent in April from 12.1 percent in March, which was the weakest pace in more than a decade, the People's Bank of China said in a statement on its website, www.pbc.gov.cn. The April growth was higher than a Reuters poll forecast of 12.2 percent.

"We cannot be optimistic about the total financing demand, as the April credit data shows both new yuan loans and social financing aggregate grew at a slower pace," said Xu Bo, an analyst at Bank of Communications in Shanghai.

"We don't expect any big loosening measures by the central bank, at least in the coming three to six months."

Growth in outstanding yuan loans also slowed, to 13.7 percent in April from 13.9 percent in March. The April pace was the lowest in more than eight years.

The central bank also said China's total social financing aggregate, a broad measure of liquidity in the economy, was 1.55 trillion yuan in April versus 2.07 trillion yuan the month before.

But central bank officials insist that current money supply growth remains at a reasonable level and total liquidity is ample enough to meet the needs of the real economy. The central bank aims for a 13 percent annual rise in M2 this year.

Recent factory surveys pointed to initial signs of stabilisation in the world's second-largest economy as the government uses targeted measures, including accelerated spending on railways and affordable housing, to underpin growth.

A TARGETTED APPROACH

Central bank governor Zhou Xiaochuan was reported as saying on Saturday that China will not use any large-scale stimulus to boost its economy, in response to speculation that authorities might lower reserve requirements for banks to spur growth.

The government is trying to deal with the lingering hangover of a 4 trillion yuan ($652 billion) stimulus package implemented in 2008-2009, which resulted in piles of local government debt.

"Although the authorities have pledged to tackle overcapacity in certain sectors of the economy, they seem to favour a targeted approach in recent months, and credit is still abundant for the wider economy," said Chester Liaw, an economist at Forecast Pte in Singapore.

The central bank said earlier this month that it would keep monetary policy steady with timely fine-tuning to help stabilise economic growth, while introducing greater yuan flexibility.

While maintaining its longstanding prudent monetary policy, the central bank has started to fine-tune its stance to support the slowing economy. Last month, the central bank cut the reserve requirement ratio (RRR) for rural banks and cooperative banks to shore up the weaker agricultural sector.

On Tuesday, China will report April data for industrial output, retail sales and urban investment

($1 = 6.2280 Chinese Yuan) (Reporting by China economics team; Editing by Richard Borsuk)