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China's key stock index plunges 7.7 percent after central bank tightens credit

China's key stock index plunges 7.7 percent after central bank tightens credit

Chinese stocks saw their biggest fall in over a year on Tuesday as investors unloaded shares following the central bank's latest credit-tightening move.
The benchmark Shanghai Composite Index dropped 257.34 points, or 7.7 percent to 3,072.33. It was the benchmark's biggest one-day percentage decline since it fell 8.3 percent on June 4, 2007.
The Shenzhen Composite Index of China's second, smaller market lost 8 percent to 928.20.
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.
"It's the second time in a month that the reserve-requirement ratio was raised and this deeply worries investors. The market is too weak to resist any bad news," said Wei Daoke, an analyst with Shenyin Wanguo Securities in Shanghai.
The move, which leaves less money available for lending and investment, signaled authorities' intentions to keep credit tight to fight inflation, likely hurting prospects 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 led the decline. Shanghai Pudong Development Bank dropped by the daily 10 percent limit to 25.75 yuan, property developer China Vanke tumbled 10 percent to 17.70 yuan while Poly Real Estate Group also fell by the daily 10 percent limit, to 15.94 yuan.
With crude oil prices hovering near US$135 a barrel, airlines were hammered by worries over their operating costs. Air China lost 10 percent to 10.99 yuan and China Eastern Airlines also plunged 10 percent, to 9.06 yuan.
Refiners also took a hit. Shanghai market heavyweight PetroChina dropped 6.1 percent to 16.13 yuan and China Petroleum & Chemical Corp., or Sinopec, lost 8.4 percent to 12.34 yuan.
"Higher prices will raise production costs sharply, while the government is still controlling domestic prices. Under these conditions, investors are questioning prospects for profitability," said Feng Yuming, an analyst at Oriental Securities in Shanghai.
In currency dealings, the Chinese yuan hit a fresh record high against the U.S. dollar, but fell back later in the day amid strong demand for dollars due to the increase in required bank reserves.
The dollar ended at 6.9255 on the over-the-counter market, up from Friday's close of 6.9230. During trading it dipped to 6.9140, its lowest level since the current exchange system was set up in 2005.


Updated : 2021-05-08 20:30 GMT+08:00