Shanghai, Chinastocks and bonds struggled for direction on Monday after the central bank surprised markets by leaving the interest rate unchanged when rolling over maturing medium-term policy loans.

The People's Bank of China (PBOC) instead boosted liquidity injections in the operation. It kept the rate of medium-term lending facility (MLF) loans unchanged at 2.50 per cent, but injected a net 216 billion yuan of fresh funds into the banking system.

China's CSI 300 index edged 0.4 per cent higher after dropping as much as 0.7 per cent, while the Hang Seng benchmark added roughly 0.2 per cent in early trade.

Yields on China's 10-year government bonds rose nearly 2 basis points to 2.55 per cent on the news before dropping to the 2.52 per cent level.

In a Reuters poll of 35 market participants conducted last week, 19- 54.3 per cent, had expected the central bank to cut the MLF rate to help shore up the weak economy.

"The PBoC chose to hold despite strong deflation pressure. This likely reflects its concerns about bank profitability," ANZ analysts said in a note.

"Policy focus has shifted to the effectiveness of monetary policy. Today's hold means the chance of an RRR (reserve requirement ratio) cut in February is higher. The authorities will tend to maintain ample liquidity as the Lunar New Year approaches (Feb. 10)."

Shares of new energy companies were down 0.1 per cent and defence stocks lost more than 1 per cent. Shares in tourism firms jumped 3 per cent in China's winter tourism season. Hong Kong-listed tech giants declined roughly 1 per cent.

New bank lending in China rose less than expected in December from the previous month, but lending for the full year of 2023 set a record as the central bank keeps policy accommodative.

Sluggish credit demand

The data "all came in below expectations, showing sluggish credit demand despite the accommodative policy stance," Goldman Sachs analysts said in a note. They also said, "The composition of loans data painted a slightly less disappointing picture than the headline loan number."

Investors are awaiting data due this week to measure the pace of recovery, including December industrial output, investment and retail sales, along with fourth-quarter gross domestic product.