* C.bank: maintaining steady, rapid growth is challenging
* C.bank to watch economy before deciding to cut rates
* Separate official says recovery possible in H1
* Official newspaper says Feb new loans total 1.1 trln yuan (Recasts with c.bank report, domestic media report on lending)
By Zhou Xin and Langi Chiang
BEIJING, March 3 (Reuters) - China's central bank faces a tough challenge to promote stable economic growth this year while preventing deflation, but it needs more data before deciding whether to cut interest rates, officials said on Tuesday.
Annual economic growth slowed to 6.8 percent in the fourth quarter of 2008 from 13 percent in all of 2007, and initial indications for the first months of this year are that the world's third-largest economy has yet to turn around.
The People's Bank of China (PBOC) cut interest rates five times last year as part of efforts to stimulate the economy, and many observers expect it to cut them further in the next few months if growth does not pick up soon.
"China still faces a stern task to promote stable and relatively fast economic growth," Li Dongrong, assistant governor of the PBOC, said in a statement summarising an internal meeting published on the central bank's website (www.pbc.gov.cn).
Liu Shiyu, a deputy head of the central bank, told the same meeting that, with many uncertainties facing the economy this year, it would face "big challenges" in its work to steer the country's money supply and credit growth.
Liu told reporters earlier on Tuesday that one of the tasks of the central bank this year would be to prevent deflation, but he did not give a clear indication of what that would mean for policy.
"We are still watching for whether we need to further cut interest rates. We will consider the economic growth conditions to decide whether or not to cut interest rates," Liu said before a meeting of a parliamentary advisory body.
ANOTHER BURST IN LENDING
The central bank said in its statement that it would aim for "reasonable and stable" growth in money supply and credit.
That comes after the website of the Shanghai Securities News on Tuesday cited an unnamed source as saying that new lending in February amounted to 1.1 trillion yuan ($160.8 billion), a slowdown from the record 1.62 trillion yuan in January but much greater than many observers had previously expected.
The recent spike in lending has raised some concerns about whether it might lead to a rebound in non-performing loans.
Liu and other officials expressed confidence in Beijing's ability to achieve its 8 percent target for gross domestic product growth this year, which it is eyeing as part of efforts to maintain employment and thus social stability.
"The overall economic conditions are currently normal and we could very possibly see a recovery in the first half. We're confident about the economy," Su Ning, another deputy governor of the central bank, told reporters.
Commerce Minister Chen Deming added that China would keep the yuan stable despite the weakening currencies of some of its neighbours.
The yuan has been largely flat against the dollar in the past seven months, at about 6.84 per dollar, even though the dollar has strengthened against many other major currencies.
"The trend of the yuan is to maintain stability," Chen told reporters on the sidelines of the meeting.
"So far, I haven't seen any trend of modest yuan depreciation," he said. "However, stability does not rule out small fluctuations." (Additional reporting by Aileen Wang and Shen Yan; Writing by Jason Subler; editing by David Stamp)