China's banking regulator ordered some of the nation's smallerlenders to set aside more funds to avoid a cash shortfall, threepeople with knowledge of the matter said, signaling rising concern that defaults may climb.

China Banking Regulatory Commission (CBRC) branches asked somecity commercial banks and rural lenders to strengthen liquiditymanagement this year, the people said, asking not to be identifiedbecause the matter is confidential. Different requirements arebeing instituted by province, such as quarterly stress tests, afterCBRC studies last year showed increasing risks at those lenders,the people said.

The People's Bank of China (PBOC) signaled on Feb. 8 thatvolatility in money-market interest rates will persist,underscoring investors' concerns that financial stresses could dragdown growth in the world's second-biggest economy. The bailout of a3 billion-yuan ($495 million) high-yield investment product daysbefore it matured last month highlighted challenges for authoritiesseeking to rein in an unprecedented credit boom.