China targets 8.5 trln yuan new loans, 13 pct M2 growth in 2013 -report

* China to target 8.5 trln yuan in local-currency loans in 2013

* To target M2 growth of 13 pct -China Securities Journal

* Other forms of finance increasingly important

* Trust loan growth exploded in 2012

SHANGHAI, Jan 11 (Reuters) - Beijing will target 8.5 trillion yuan ($1.37 trillion) in new local-currency loans in 2013 and 13 percent annual growth in the broad money supply (M2), the official China Securities Journal reported, citing anonymous regulatory sources.

The new loan figure would signify the highest level of lending in four years, the report said. Chinese banks extended 8.2 trillion yuan in new loans in 2012.

New lending is expected to support a nascent economic recovery in the world's second-largest economy, but regulators remain concerned that sloppy lending could rekindle price inflation.

Consumer price inflation was 2.5 percent year-on-year in December, higher than a Reuters poll forecast. Regulators worry that higher prices for food and residential rents will provoke social instability.

M2 grew 13.8 percent in 2012, but other forms of financing not captured by M2 have increased in importance, including trust loans and bond issuance. Such alternative channels are measured by China's homegrown money supply measure, Total Social Financing (TSF).

TSF hit 15.76 trillion yuan in 2012, up nearly 23 pct year-on-year. The development of the alternative funding channels measured by TSF is being encouraged to decrease the country's overdependence on bank loans for financing, which regulators are concerned has led to misallocated and mispriced investment in the past.

At the same time, the TSF has captured the growth of some forms of finance that have become a source of concern, in particular trust loans which analysts say have become a mechanism for obscuring risk and hiding non-performing loans.

An article in the official Shanghai Securities News on Friday reported that trust loans exploded to 1.29 trillion yuan in 2012, up from 201.3 billion yuan the prior year.

The government has not published formal forward-looking targets for TSF.

Net new loans in December totalled 454 billion yuan ($72.92 billion), well below market expectations of 550 billion yuan.

However, much of the decline was due to a reduction in the issuance of discounted bills, which have little relationship to investment.

In fact, analysts say the lower proportion of bill discounting in overall lending may signal improving risk appetite by banks as China's economic outlook improves.

($1 = 6.2244 Chinese yuan)

(Editing by Edmund Klamann)