SHANGHAI stocks edged down this morning as data showed the county's investment activities cooled in the second quarter, casting shadow over the outlook of the world's second largest economy.

The benchmark Shanghai Composite Index shed 0.13 percent, or 2.91 points to 2297.88 points. Turnover stood at 26.4 billion yuan (US$4.2 billion) by midday.

An index measuring demand for loans in China fell to 70.8 percent in the second quarter this year, down from 79.6 percent in the previous quarter, the People's Bank of China said yesterday.

Loan demand index for large enterprises dropped from 64.4 percent to 57.1 percent and the index of demand for loans for small- and medium-sized enterprises declined from 81.8 percent to 76.3 percent.

Analysts expect the central bank will further ease monetary policies in the second half of the year to lift investment activities. "The central bank will further take one to three cuts in the reserve requirement ratio this year, by 50 basis points each time", said Lian Ping, chief economist at the Bank of Communications.

The People's Bank of China cut the reserve requirement ratio by 50 basic points on May 18, the third cut in this easing cycle since last November.

Pharmaceutical companies reversed the strong performance and led the market down. Guangzhou Pharmaceutical Co slumped 4.4 percent to 24.79 yuan; Guangxi Wuzhou Zhongheng Group Co fell 3.1 percent to 11.45 yuan; Beijing Tongrentang Co, a producer of traditional Chinese medicines, lost 1.3 percent to 16.17 yuan.

Lenders rose on speculation the government may step up efforts to stimulus economic growth. The Industrial and Commercial Bank of China Ltd, the nation's largest lender, added 0.3 percent to 3.95 yuan; China Construction Bank Corporation edged up 0.2 percent to 4.52 yuan; Bank of Communications rose 0.7 percent to 4.55 yuan.

Insurers gained as the government plans to allow insurers to invest yuan raised abroad in the domestic market, as a move to widen investment options for insurance funds. China Life Insurance, the country's biggest insurer, grew 0.7 percent to 17.95 yuan; Ping An Insurance Co, China's second largest insurer, gained 0.3 percent to 46.08 yuan; China Pacific Insurance (Group) Co rose 1.1 percent to 22.13 yuan.