BANKS in China extended a more-than-expected 587.7 billion yuan (US$89 billion) worth of new yuan-denominated loans last month, the central bank said today.

M2, the broadest measure of money supply, rose 19.3 percent in October from a year earlier, the People's Bank of China said on its website. The money supply growth was in line with market expectations.

China is tightening its monetary policy on the backdrop of rapid loan growth, mounting inflation and pressure of capital inflows amid the quantitative easing by the United States.

China last night announced that it would require banks to set aside more capital from lending to control liquidity, just one day before the money supply and inflation figures are released.

Commercial banks in China will face a 50 basis point increase on the reserve requirement ratio from November 16.

The Consumer Price Index, the main gauge of inflation, rose 4.4 percent year on year in October, the fastest pace in 25 months, the National Bureau of Statistics said today.

China targets its yearly new yuan loans to be within 7.5 trillion yuan this year, down from a record 9.6 trillion yuan in 2009.

Banks have already extended loans of 6.9 trillion yuan in the first 10 months. To meet this year's loan target, banks should contain their average monthly loan extension to 306 billion yuan in the last two months of this year.

The target for M2, the broadest measure of money supply, is set at 17 percent this year.