Chinese banks are expected to have extended 1.2 trillion yuan (135.9 billion pounds) in net new yuan loans in April, falling from 1.69 trillion yuan in March but still ahead of 1.18 trillion yuan in the same month last year, a median estimate in a Reuters survey of 32 economists showed.

While April lending levels have tended to moderate from March in past years, investors are closely watching trends for any signs that policymakers are turning more cautious about additional stimulus measures.

Bank lending jumped 20 percent in the first quarter to a new record -- and there are some signs the economy is slowly responding -- but there are also concerns that a prolonged, heavy credit burst could fuel a further rise in bad loans as banks loosen lending standards.

Still, while stronger measures may be on hold, analysts believe the central bank will maintain an easing policy stance to support domestic demand, especially after an unexpected escalation in trade tensions with the United States this week.

The People's Bank of China said on Monday it will cut reserve requirement ratios for some small and medium-sized banks, in the latest in a series of moves specially tailored to help small firms struggling amid the economic slowdown.

"We think this will push up bank lending growth in the coming months. In particular, the targeted nature of the RRR cut should help to reverse the recent slowdown in lending to SMEs," analysts at Capital Economics said in a note.

Outstanding yuan loan growth on a year-on-year basis likely dipped fractionally to 13.6 percent, from 13.7 percent in March, the poll showed.

Broad M2 money supply was seen rising 8.5 percent on-year, a notch down from March.TSF, a broad measure of credit and liquidity in the economy, was estimated to have dropped to 1.7 trillion yuan in April from 2.86 trillion in the previous month, as local government special bond issuance slowed after a rush in the first quarter.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

NARROW INTEREST MARGINS

Some analysts have warned Chinese banks' asset quality could come under pressure as they heed Beijing's request to ramp up small business loans. Smaller, private firms are considered higher credit risks than state-backed firms and more vulnerable to cyclical downturns.

The "front-loading" of loans at the beginning of the year, with some banks hitting 40 percent of their annual targets, squeezed interest margins at some lenders.

Net interest margin (NIM), a key gauge of profitability, narrowed in the first quarter at some big state-owned banks including Bank of China Ltd (BoC) and China Construction Bank Ltd (CCB).

Chinese leaders have pledged to ensure economic stability in a year that will mark the 70th anniversary of the founding of the People's Republic, while vowing not to adopt "flood-like" stimulus that could worsen debt and structural risks.

Analysts believe PBOC has less room to ease policy this year after it cut RRRs and interest rates aggressively in past economic downturns. Beijing has been leaning more on fiscal stimulus this time, counting on higher infrastructure spending and tax cuts to stoke growth.

(Reporting by Lusha Zhang and Kevin Yao; Editing by Kim Coghill)

Stocks treated in this article : Bank of China Ltd, China Construction Bank Corporation