I'm setting up multisite on localhost in subdirectories.

The problem is that when I'm trying to access the dashboard of a site I just created ( localhost/wptest/site/wp-admin ) I get "This webpage has a redirect loop" and when I try to access the actual website ( localhost/wptest/site ) the page loads but without assets, such as css.

When I access the network dashboard, or the primary site dashboard on localhost/wptest everything is just fine. Also when I edit the permalink of the second site in the network dashboard, to be like this: localhost/site it also runs fine.

How to make it work with the default permalink structure localhost/wptest/site?

The wordpress files are in

/usr/share/html/wptest

The wp-config.php is as follows:

define('WP_ALLOW_MULTISITE', true);
define('MULTISITE', true);
define('SUBDOMAIN_INSTALL', false);
define('DOMAIN_CURRENT_SITE', 'localhost');
define('PATH_CURRENT_SITE', '/wptest/');
define('SITE_ID_CURRENT_SITE', 1);
define('BLOG_ID_CURRENT_SITE', 1);

And the server block / virtual host is like this:

server {
    ##DM - uncomment following line for domain mapping  
    listen 80 default_server;
    #server_name example.com *.example.com ;
    ##DM - uncomment following line for domain mapping
    #server_name_in_redirect off;

    access_log   /var/log/nginx/example.com.access.log;
    error_log    /var/log/nginx/example.com.error.log;

    root /usr/share/nginx/html/wptest;
    index index.html index.htm index.php;

    if (!-e $request_filename) {
        rewrite /wp-admin$ $scheme://$host$uri/ permanent;  
        rewrite ^(/[^/]+)?(/wp-.*) $2 last;                     
        rewrite ^(/[^/]+)?(/.*\.php) $2 last;                   
    }

    location / {
        try_files $uri $uri/ /index.php?$args ;
    }

    location ~ \.php$ {
        try_files $uri /index.php;
        include fastcgi_params;
        fastcgi_pass unix:/var/run/php5-fpm.sock;
    }

    location ~* ^.+\.(ogg|ogv|svg|svgz|eot|otf|woff|mp4|ttf|rss|atom|jpg|jpeg|gif|png|ico|zip|tgz|gz|rar|bz2|doc|xls|exe|ppt|tar|mid|midi|wav|bmp|rtf)$ {
        access_log off; log_not_found off; expires max;
    }

    location = /robots.txt { access_log off; log_not_found off; }
    location ~ /\. { deny  all; access_log off; log_not_found off; }
}

And finally here's an error log:

2013/06/29 08:05:37 [error] 4056#0: *52 rewrite or internal redirection cycle while internally redirecting to "/index.php", client: 127.0.0.1, server: example.com, request: "GET /nginx HTTP/1.1", host: "localhost"