People walk past the central bank headquarters in Beijing. The central bank said it would continue with its proactive fiscal policy in the second half to sustain stable and relatively fast economic growth. [CFP]

China's central bank on Friday reiterated that it would continue with its moderately loose monetary policy and regulate credit growth after new lending rose to a record in the first half of the year.

The People's Bank of China (PBOC), the central bank, said the recovery in the economy is not yet on a solid footing and that it would stick to its loose monetary policy stance.

The central bank remarks are in line with the statements made by top Chinese leaders on Thursday of continuing the proactive fiscal policy and moderately easy monetary policy in the second half also to sustain stable and relatively fast economic growth.

The central bank, however, said it would take steps to control loan risks and the distribution of loans.

Analysts believe the central bank could fine-tune the huge credit by using open market operation tools.

In fact, the central bank has already initiated the selling of bills worth 100 billion yuan to certain commercial banks in order to control loans, according to a report by China Securities Journal.

The A-share market climbed 1.33 percent to a 13-month closing high on Friday, posting its best weekly performance in more than two months as energy and metals shares surged after the government reiterated its easy monetary policy.

The Shanghai Composite Index rose by 44.11 points to close at 3,372.6, a gain of 5.7 percent for the week.

The Shanghai index has more than doubled since hitting a two-year low of 1,665 points in October 2008.

"The market is likely to gain next week. The loose monetary policy will remain in place for the rest of the year, and this will directly bolster investor confidence," said Li Wenhui, analyst, Huatai Securities in Nanjing.

Energy shares led gains, with PetroChina the most heavily weighted share in the index, up 5.41 percent at 16.18 yuan.

Li said China appeared unlikely to cut retail fuel prices this month, given the firm trend in international crude prices.

Coal shares surged, with China Shenhua Energy climbing 6.23 percent to 40.07 yuan after it said it construction work had started on a $331-million project in Indonesia, in which it holds a 70-percent stake. The company's Hong Kong-listed stock rose 4.2 percent to HK$30.75.

Coal shares were also lifted by positive power data. China's power output in mid-July via major grids was up 7.9 percent year on year at an average 11.572 billion kilowatt hours per day, the official Shanghai Securities News reported on Friday.

Metal shares jumped, with Aluminum Corp of China up by its 10 percent daily limit at 17.89 yuan.

Major shipbuilders rose, with Guangzhou Shipyard and China State Shipbuilding climbing about 4 percent after China's stock regulator said it would review on Monday an application by China's top shipbuilder for an initial public share offering worth around $1 billion.

Property stocks were soft. China Vanke fell 1.39 percent at 14.22 yuan after the Financial News reported that China's banking regulator said it saw signs of an asset price bubble in a recent surge in house prices, although it reiterated it had not changed its policy on purchases of second homes and would maintain it.

Reuters contributed to the story

(China Daily July 25, 2009)