SHANGHAI'S stocks may extend its gains this week on expectations of a further cut in the reserve requirement ratio by the Chinese central bank to boost liquidity.

The Shanghai Composite Index edged up 0.2 percent to close at 2,306.55 points on Friday for its first weekly gain in a month.

The People's Bank of China said last week in a quarterly meeting it will continue to follow a prudent monetary policy to expand the money supply and credit supply in a steady and moderate manner.

"The central bank hasn't mentioned about 'moderate growth' in more than a year," said Mao Long, analyst at Huatai Securities. "It's a signal of policy easing."

He expects the PBOC to cut the bank reserve ratio this month because the growth in yuan funds accumulated from foreign exchange is decelerating.

The brokerage estimated that new loans in March may have exceeded 800 billion yuan (US$126.3 billion), better than the figures of the previous two months.

Li Xunlei, an economist, also anticipated a cut in the reserve ratio in the second quarter due to low inflation expectations.

Citing Li's comments the National Business Daily reported yesterday: "Liquidity is tight. The reserve requirement needs to be adjusted (lower) to bolster the economy" for it to expand.

Source:shanghaidaily