By Liz Lee

BEIJING (Reuters)

China's new yuan loans are expected to decline significantly in October compared to September, indicating weak credit demand despite the central bank's increased policy stimulus to support the economy.

Banks likely issued 700 billion yuan ($97.86 billion) in net new yuan loans last month, according to a median of 19 economists' estimates, down from 1.59 trillion yuan in September. This figure is also lower than the 738.4 billion yuan issued in the same month last year.

In late September, China's central bank revealed an aggressive stimulus package, including rate cuts, while Chinese leaders pledged necessary fiscal spending to help meet a growth target of around 5%.

Analysts expect weak credit demand to persist in October even as the central bank enhances policy stimulus, although they anticipate some improvement in business sentiment.

> "Mortgage repricing happened only at end-October, and household long-term loans may not really stage a rebound," analysts at Citi noted. "Corporate credit demand could stay soft, with the bill discount rate trending lower during October."

So far, banks issued 16.02 trillion yuan in new loans during the first nine months of the year, compared to 19.75 trillion yuan in the previous year.

China's economy has shown signs of losing momentum since the second quarter, prompting policymakers to take action to address ongoing weakness from a prolonged property market downturn and rising local government debt.

Chinese lawmakers are currently reviewing a cabinet bill that would increase ceilings on local government debt to replace existing hidden debt at a week-long meeting by the standing committee of China's top legislature. The announcement is expected later on Friday.

This follows Finance Minister Lan Foan's announcement that China would "significantly increase" government debt and support consumers and the property sector, although details regarding the scale or timing of these fiscal measures remain unclear.

Recent reports suggest that China is considering approving new debt issuance exceeding 10 trillion yuan to address hidden local government debt, fund idle land buybacks, and reduce a substantial inventory of unsold flats.

However, analysts believe that most of the fresh funds will focus on alleviating local government debt rather than providing an immediate boost to economic activity.

Sources also indicated that the potential victory of U.S. Republican candidate Donald Trump in the presidential election might prompt a stronger fiscal package due to anticipated economic challenges for China.

Outstanding yuan loans are expected to rise 8.1% in October year-over-year, consistent with the rate from September.

Additionally, broad M2 money supply growth in October is projected to be 6.9%, up from 6.8% in September.

An increase in government bond issuance could enhance growth in total social financing (TSF), a comprehensive measure of credit and liquidity in the economy that includes off-balance sheet financing, which saw a record low of 8.0% in September down from 8.1% in August.

TSF in October is likely to decrease to 1.55 trillion yuan compared to 3.76 trillion yuan in September.

($1 = 7.1530 Chinese yuan renminbi)