BEIJING China's new yuan loans are expected to fall sharply in July from June after record lending in the first half, a Reuters poll showed, but they could still exceed the year-earlier amount as the central bank seeks to underpin the economy amid a faltering recovery.

Chinese banks are estimated to have issued 800 billion yuan ($110.98 billion) in net new yuan loans last month, down sharply from 3.05 trillion yuan in June, according to the median estimate in the survey of 29 economists.

But the expected new loans would be higher than the 679 billion yuan issued in the same month a year earlier.

Chinese banks doled out 15.73 trillion yuan in new loans in the first six months of this year, the highest first-half number on record, central bank data showed.

China's economy grew at a frail pace in the second quarter as demand weakened at home and abroad, with the post-COVID momentum faltering rapidly and raising pressure on policymakers to deliver more stimulus to shore up activity.

China's consumer sector fell into deflation and factory-gate prices extended declines in July, as the world's second-largest economy struggled to revive demand and pressure mounted for Beijing to release more direct policy stimulus.

China's top leaders in late July pledged to step up policy support for the economy amid a tortuous post-COVID recovery, focusing on boosting domestic demand, signalling more stimulus steps.

Last week, a senior central bank official said the bank will flexibly use policy tools such as reserve requirement ratio (RRR) cuts to ensure reasonably ample liquidity, amid a push by government agencies to roll out more supportive measures.

Outstanding yuan loans were expected to grow by 11.3% in July from a year earlier, the same as in June, the poll showed. Broad M2 money supply growth in July was seen at 11.0%, down from 11.3% in June.

Local governments issued a net 2.3 trillion yuan in special bonds in the first half of the year, data from the finance ministry data showed, as authorities accelerated special bond issuance for infrastructure to prop up the economy.

Any acceleration in government bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity. Outstanding TSF was 9.0% higher at the end-June than a year earlier, slowing from the 9.5% annual rate seen at end-May.

In July, TSF is expected to fall sharply to 1.10 trillion yuan from 4.22 trillion yuan in June.

($1 = 7.2084 Chinese yuan)

(Reporting by Judy Hua and Kevin Yao; Editing by Conor Humphries)