Markets

Chinese shares plunge on fears of futher tightening measures

(Xinhua)
Updated: 2010-11-12 15:37

BEIJING - Chinese shares plummeted the most since Aug 31 last year on Friday, as investors feared more interest rate raise after inflation hit 25 month high in October.

The benchmark Shanghai Composite Index lost 5.16 percent, or 162.31 points, to 2,985.44.

The Shenzhen Component Index dropped 7.003 percent, or 958.40 points, to close at 12,726.54.

Combined turnover rose to 533.21 billion yuan ($78.41 billion) from 506.18 billion yuan the previous trading day.

More than 150 stocks dived by the daily 10 percent limit.

The government has shown its resolve to curb inflation expectations and asset bubbles and thus interest rates could be hiked again by the end of this year, the China International Capital Corporation Limited said in a report on Friday.

Financial stocks dived as government tightening measures could hurt their profit margins.

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Citic Securities, the country's largest securities broker, was down 9.27 percent to 14.19 yuan. Merchants Securities ended at 22.00 yuan, down 9.02 percent.

Industrial and Commercial Bank of China Ltd, the nation's largest lender, slid 1.89 percent to 4.68 yuan. Bank of China lost 3.43 percent to 3.38 yuan.

Iron and steel makers tumbled on concerns that slowing growth would reduce demand for their products.

Baogang Iron & Steel, was down 10.06 percent to 4.47 yuan. Ansteel lost 7.89 percent to 8.76 yuan.

China's consumer inflation hit 4.4 percent in October, the highest in 25 months. New bank lending also exceeded market forecast.

Analysts said the quantitative easing policies by the US Federal Reserve will exacerbate the excess liquidity problem, resulting in further hot money inflows into emerging economies like China, and might complicate China's fight against inflation.

To stem the imminent risks, China's central bank raised the lending and deposit rates by 25 basic points on Oct 20, the first such move in three years.

It also hiked the deposit reserve requirement ratio for Chinese financial institutions by 50 basis points from Nov 16, which was estimated to freeze more than 300 billion yuan.