China took further targeted steps to curb lending while official media expressed caution about raising interest rates or letting the yuan rise faster, highlighting Beijing's delicate task in tempering rapid economic growth.

The nation's bank regulator has ordered banks incorporated in the financial capital Shanghai not to lend for fixed-asset investment for the rest of the month, two people familiar with the situation said Thursday.

At the same time, commentaries in state-run newspapers added to recent statements indicating caution about using the most powerful economic levers to tighten policy--including the lending quota for banks, interest rates and the value of the currency.

This may bolster the view in global financial markets that China, despite the highest inflation in two years, will hold off from raising interest rates or letting the yuan rise sharply, but will instead take narrower steps such as last week's increase in banks' reserve requirements.

Still, the policy outlook remains unclear and more restrictive tightening measures can't be ruled out, especially if inflation continues to accelerate.

The government has signaled a tighter monetary policy next year, saying it will shift to a "prudent" from a "moderately loose" stance. In October, the central bank raised interest rates for the first time in almost three years, but overall its preferred tool has been to force banks to hold more cash in reserve, something it ordered Friday for the sixth time this year. The central bank has let the yuan rise about 2.5% since ending a two-year peg to the dollar in June.

The PBOC has hesitated to raise deposit or lending rates further despite increasingly worrisome inflation, possibility out of concern about encouraging inflows of speculative capital.

A commentary Thursday in the state-run China Securities Journal said China will make steady economic growth the priority next year, and will exercise caution on raising interest rates or allowing faster currency appreciation.

"If there is no growth, people's income growth will stall, then it will be meaningless even if there's price stability," the newspaper said.

Similarly, a commentary in the central-bank run Financial News argued that a big move in the yuan exchange rate would have a large impact on China's economic and financial stability next year, so maintaining the currency's basic stability "is of great significance."

The directive by the Shanghai branch of the China Banking Regulatory Commission follows a spike in lending by Shanghai-based banks last month, up more than seven times from a year earlier to CNY36.1 billion.

Banks affected include Shanghai-headquartered Chinese banks, such as Bank of Communications Co., Shanghai Pudong Development Bank Co. and Bank of Shanghai Co., and foreign banks incorporated in Shanghai, such as HSBC Holdings PLC and Hang Seng Bank Ltd., the people told Dow Jones Newswires.

In addition, the CBRC this week directed banks to provide more credit to the real economy, especially to agriculture-related companies and small and midsize firms, and said it will "decisively stop" improper cooperation by banks and non-bank financial institutions such as trust companies.

People's Bank of China Gov. Zhou Xiaochuan indicated Wednesday that money supply and liquidity levels are appropriate, suggesting broad-based tightening isn't urgently needed.

In a speech carried by local media, the central bank chief disputed that China is suffering from excessive money supply, saying China's high savings rate and the dominant role of banks in the financial sector determine the ratio of money supply to gross domestic product. Some critical analysts, arguing that China's inflation is linked to its large money supply, have pointed out that the broadest measure of Chinese money supply, M2, now exceeds the quantity of M2 in the U.S.

Zhou said the best measure of whether money supply is excessive is the "core" consumer price index, apparently referring to the CPI when stripped of volatile food prices. In November, China's consumer price index rose an alarming 5.1% from a year earlier, but that was mainly due to an 11.7% jump in food prices. Non-food inflation was just 1.9%.

Zhou also said China should step up its efforts to offset the influx of foreign funds from the country's trade surplus, capital inflows, and foreign investment. He said China can offset all the inflows and prevent them from affecting the domestic economy but putting them into a "pool."

He has used the pool metaphor before to describe how to offset inflows of foreign money but has never elaborated on its meaning. In the past, the PBOC relied on higher reserve requirements to keep some of the added liquidity locked up on bank balance sheets, and has issued central bank bills to mop up liquidity.

Chinese banks likely will have issued about CNY7.6 trillion worth of new loans this year, slightly higher than the targeted CNY7.5 trillion, a government researcher told Dow Jones Tuesday. Yu Bin, director of the State Council Development Research Center's macroeconomic research department, added that Beijing's lending target for next year will be only "slightly less" than this year's total.

Until recently, markets had expected Beijing to target a substantial cut in lending for 2011, perhaps CNY7.0 trillion or lower.

-By Aaron Back, Rose Yu and Liu Li, Dow Jones Newswires; (8610) 8400-7701; aaron.back@dowjones.com