SHANGHAI stocks retreated in the morning session today over worries that lower credit demand from companies signals the economy is still stuttering along at a lackluster pace.

The Shanghai Composite Index lost 0.76 percent to 2,253.6 points by the noon break.

China's total new lending in May may be as low as 700 billion yuan (US$113 billion), below the average of 887 billion yuan in the previous four months, said Shenyin and Wanguo Securities in a report.

Analysts said weak credit demand from companies is a bad sign and means the economy might not be improving.

A liquidity crunch may further weigh on the stock market this month but with less impact compared to April, Haitong Securities said in a report today.

Lenders as a group lost 1 percent on average during morning trading. Bank of China dropped 0.3 percent to 2.94 yuan. Bank of Communications lost 0.4 percent to 4.64 yuan. Shanghai Pudong Development Bank slumped 1.6 percent to 9.5 yuan.