* May new loans at 1.18 trln yuan vs forecast 1.225 trln yuan
* May TSF growth quickens to 10.6% from 10.4% in April
* May M2 money supply up 8.5% y/y, vs forecast 8.6%
* More policy easing expected as trade war with U.S. intensifies
* Rising consumer inflation won't hamper policy easing - analysts
By Lusha Zhang and Kevin Yao
BEIJING, June 12 (Reuters) - Chinese banks doled out more loans in May to support the slowing economy hurt by a trade war with the United States, with further policy easing likely even amid accelerating consumer inflation.
Markets are keen to see if government efforts to spur lending, especially to smaller business, will help sustain credit growth in the wake of a sharp escalation in the Sino-U.S. trade war that could put a brake on economic growth this year.
"May credit data showed some improvement due to policy support," said Luo Yunfeng, an analyst at Merchants Securities in Beijing. "Further policy easing may be needed if trade frictions between China and the United States have a big impact on the economy."
Chinese banks extended 1.18 trillion yuan ($170.7 billion) in net new yuan loans in May, up from 1.02 trillion yuan in April, People's Bank of China (PBOC) data showed on Wednesday, but less than the 1.225 trillion yuan analysts expected.
Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 10.6% in May from a year earlier from 10.4% in April.
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.
In May, TSF rose to 1.4 trillion yuan from 1.36 trillion yuan in April.
Broad M2 money supply in May grew 8.5% from a year earlier, below estimates of 8.6% by analysts polled by Reuters, and unchanged from April's pace.
Outstanding yuan loans grew 13.4% from a year earlier. Analysts had expected 13.5%, unchanged from April's pace.
"Credit growth remained broadly stable in May," Capital Economics said in a note. "Policy easing has not yet been effective in generating a sustained pick-up in credit growth and is one of the reasons why we don't expect a strong recovery in economic growth in the coming months."
ROOM FOR EASING
Central bank chief Yi Gang said last week that there was "tremendous" room to make policy adjustments if the China-U.S. trade war worsens.
Further cuts in banks' reserve requirements are expected this year, especially after an escalation in the U.S.-China trade war last month, when both sides hiked tariffs on each other's goods and Washington threatened more.