WRAPUP 2-China's central bank calms markets, but tighter policy looms

Wed Jun 26, 2013 4:50am EDT
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* PBOC statement calms markets but tighter conditions seen

* Money market rates edge down but remain elevated

* Shanghai shares recoup early losses, but financials weak

* China's top bank says lacked clear direction during turmoil

By Gabriel Wildau and Lu Jianxin

SHANGHAI, June 26 (Reuters) - China's financial markets calmed down on Wednesday after days of turmoil thanks to the central bank's pledge to prevent a credit crunch, but stocks struggled as investors braced for tougher conditions in the world's second-largest economy.

The People's Bank of China (PBOC) said late on Tuesday it had helped some banks and was ready to act again as the lender of last resort for those caught in a short-term squeeze. However, it was also sticking to its stance of tightening market conditions as it seeks to rein in sharp growth in informal lending.

The central bank wants to curtail funds flowing into China's vast "shadow" financial system that fuels property and stock speculation and push money into more productive areas of the economy to secure more sustained growth.   Continued...