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China's key stock index plunges 8.3 percent on reserve rate hike news

China's key stock index plunges 8.3 percent on reserve rate hike news

Chinese stocks plunged Tuesday following the central bank's latest credit-tightening move.
By midafternoon, the benchmark Shanghai Composite Index had tumbled 275 points, or 8.3 percent, to 3,054. The Shenzhen Composite Index of China's second, smaller market was down 7 percent at 937.88.
Chinese financial markets were closed Monday for a national holiday, so Tuesday was the earliest chance for investors to react to a weekend decision by the central bank ordering banks to keep more deposits on hand.
The move, which leaves less money available for lending and investment, signaled authorities' intentions to keep credit tight and likely hurting business for financial and real estate companies, among others.
The People's Bank of China ordered a 1 percentage point increase in the reserve ratio, half to be done on June 15 and the rest on June 25. The phased-in increase, the 15th in the past 18 months, was aimed at easing inflation that is at 12-year highs without unduly slowing the dynamic economic growth needed to create jobs.
After the increases, banks will be required to keep 17.5 percent of their deposits in reserve _ a record high ratio.
Buying sentiment was weak, with many investors awaiting the release later this week of May inflation data.
Since the start of the year, the Shanghai index has dropped 42 percent _ after nearly doubling last year.
Property firms and banks, industries most likely to feel pressure from the reserve rate hike, led the decline. Industrial & Commercial Bank of China shed 5.3 percent to 4.45 yuan and Bank of China dropped 6.8 percent to 5.47 yuan.
Property developer China Vanke tumbled 9.1 percent to 17.88 while Poly Real Estate Group fell by the daily 10 percent limit to 15.94 yuan.
Airlines also fell back on worries over high oil prices, which raise operating costs. Air China lost 8.7 percent to 11.15 yuan and China Eastern Airlines plunged 9.3 percent to 9.13 yuan.
In currency dealings, the Chinese yuan hit a fresh record high against the U.S. dollar.
The official, or parity, rate of the yuan was set at 6.9199 against US$1 Tuesday morning, its highest level since the current trading system was set up in July 2005. That compared with Friday's rate of 6.9238.
By midday, the yuan was at 6.9232 on the over-the-counter market. So far this year, the yuan had risen 5.5 percent against the U.S. dollar.


Updated : 2021-03-07 19:32 GMT+08:00