“The liquidity surge is already weakening and is cause for worry,” Chen Li, a Shanghai-based strategist at UBS, said in a phone interview. “Bank lending in the first quarter has almost reached last year’s full-year target.”

Chen estimates new loans will average 400 billion yuan to 500 billion yuan a month for the rest of 2009 based on the “most optimistic” projection of 8 trillion yuan of bank lending for the year. The benchmark Shanghai Composite Index gained 1 percent last week, the smallest rise in four weeks.

The measure added 2.8 percent to 2,513.70 at the close, extending this year’s rally to 38 percent, the second-best performer among 88 benchmark stock gauges Bloomberg tracks.

The People’s Bank of China “will implement moderately loose monetary policy and maintain the continuity and stability of policy,” the central bank said on its website Sunday. It pledged “ample liquidity” to “ensure money supply and loan growth meet economic development needs.”

The surge in bank lending means the improvement in the economy in the first quarter from the previous three months was “a certainty,” said Chen, who joined UBS from Shenyin & Wanguo Securities Co. last year. He was voted “best analyst” from 2005 to 2007 in an annual poll by New Fortune magazine.

China’s industrial production climbed 8.3 percent from a year earlier in March and consumer demand grew “relatively rapidly” in the first quarter, a sign the government’s 4 trillion yuan stimulus plan is taking effect, Wen was cited as saying by the official Xinhua news agency on April 12.

Source: Bloomberg