(Corrects grammatical error in opening paragraph)
By Kazunori Takada and Samuel Shen
SHANGHAI, May 11 (Reuters) - Chinese stocks edged lower in early Monday trade as an interest rate cut by the central bank failed to impress investors who are becoming increasingly worried that the recent rally has been overdone.
Money rates eased while the yuan steadied after the People's Bank of China said on Sunday it was lowering its benchmark one-year lending and deposit rates by 25 basis points, the third cut in six months, to help support an economy headed for its slowest growth in a quarter of a century.
As of 0150 GMT, the CSI300 index of the largest listed companies in Shanghai and Shenzhen was down 0.2 percent, while the Shanghai Composite Index was down 0.1 percent.
"The timing of the rate cut is well within expectations while the depth of the cut is smaller than many had expected," said Zhang Chen, analyst at Shanghai-based hedge fund manger Hongyi Investment.
"The market is in a consolidation period, and I don't think the rate cut could change that pattern."
He added increase in supply from initial public offerings were also weighing on the market.
The SSEC index posted its biggest weekly decline in nearly five years last week, triggered by signs of tighter regulatory scrutiny over margin lending, which has helped fuel a near doubling in China's stock market over the past year despite a flagging economy.
A rate cut had been widely expected by the market after economic growth in the first quarter cooled to 7 percent, a level not seen since the depths of the 2008/09 global financial crisis.
In an attempt to energise the economy, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.
The monetary easing helped lift the stock market nearly 30 percent so far this year, the best performer in Asia and easily outpacing major U.S. and European indexes.
Properties shares were outperforming the market, with the CSI300 sub index rising 1.5 percent while banking shares were down 1.6 percent.
China's money market benchmark, the seven-day repo rate fall 9.35 basis points to 2.19 percent, its lowest since March 2104, and traders said there was room for further falls in coming weeks.
"The market believes the PBOC will continue monetary easing by cuts in bank required reserve ratios and interest rates, so there is potential for further falls in money market rates," said a trader at an Asian bank in Shanghai.
"The seven-day repo rate will continue falling in medium term, but 2 percent may be a strong support."
China's yuan opened at 6.21 per dollar, little changed from Friday's close, after the PBOC set the midpoint rate at 6.1132 per dollar.
Reporting by Samuel Shen, Lu Jianxin and Shanghai Newsroom, and Saikat Chetterjee in HONG KONG; Writing by Kazunori Takada; Editing by Eric Meijer