SHANGHAI, Oct 14 (Reuters) - China stocks were mixed on Thursday as investors turned cautious about the country’s monetary policy trajectory as factory gate inflation hit record highs, while new bank lending fell short of expectations. ** At the midday break, the Shanghai Composite index was up 0.15% at 3,567.14 points, while the blue-chip CSI300 index was down 0.31%. ** China’s annual factory gate prices grew at their fastest pace on record in September, driven by energy curbs and soaring commodity prices, piling pressure on businesses already grappling with supply bottlenecks. ** “We think the risk of stagflation is rising in China as well as the rest of the world,” said Zhiwei Zhang, chief economist, Pinpoint Asset Management. “The ambitious goal of carbon neutrality puts persistent pressure on commodity prices, which will be passed to downstream firms.” ** “Persistent inflationary pressure limits the potential scope of monetary policy easing,” he added. ** Some economists believe more monetary and fiscal support are needed after official data on Wednesday showed that new bank lending in China accelerated in September from the previous month but fell short of expectations. ** The financial sub-index eased 0.9%, the consumer staples sector fell 1%, the real estate index dropped 2.71% and the healthcare sub-index lost 2.2%. ** However, the aviation sector outperformed the market on hopes of new COVID-19 treatments leading to a rebound in travel demand. ** Air China Ltd gained as much as 6.5%, while Shanghai International Airport, Juneyao Airlines , Spring Airlines, China Southern Airlines and China Eastern Airlines also advanced. ** Merck & Co said it had applied for U.S. emergency use authorization for its drug to treat mild-to-moderate patients of COVID-19, putting it on course to become the first oral antiviral medication for the disease. ** Hong Kong’s financial markets are closed for the Chung Yeung Festival on Thursday. (Reporting by the Shanghai Newsroom; Editing by Ramakrishnan M.) Our Standards: The Thomson Reuters Trust Principles.