Shanghai index sinks to 46-month low on liquidity fear

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SHANGHAI stocks tumbled again today to 46-month low amid concern over market liquidity, which overshadowed a glowing report about China's recovering manufacturing sector.

The key Shanghai Composite Index fell 1 percent, or 20.35 points, to 1,959.77 points, the lowest since January 16, 2009. Daily turnover was 43 billion yuan (US$6.9 billion) at the trading close.

"Investor sentiment sank amid concerns that the unlocking of non-tradable shares, a possible surge of new IPOs, and the expansion of over-the-counter equity market may drain liquidity from the stock market," Galaxy Securities said in a report today. But the broker said the market fall would be limited by an improving economy.

HSBC's China Purchasing Managers' Index climbed in November to a 13-month high of 50.5, compared with the final reading of 49.5 in October, HSBC Holdings PLC announced today.

The index is a gauge of manufacturing activity slanting more towards private and export-oriented firms. A reading of 50 or higher indicates expansion.

A gauge that tracks distilleries plunged 7.4 percent on fears that the tainted liquor incident may erode market demand for liquors.

Kweichow Moutai Co, a leading producer of high-end liquor in China, fell the most in eight months by 7.3 percent to 200.19 yuan. Sichuan Tuopai Shede Wine Co plunged the daily limit of 10 percent to 19.78 yuan. Shanxi Xinghuacun Fen Wine Factory Co also fell 10 percent to 32.67 yuan. Sichuan Swellfun Co lost 9.7 percent to 16.11 yuan.

Coal producers were among the big losers. Shanxi Lanhua Sci-Tech Venture Co retreated 5 percent to 16.35 yuan. Yang Quan Coal Industry (Group) Co shrank 8.5 percent to 11.22 yuan. Shanxi Lu'an Environmental Energy Development Co dropped 4.2 percent to 15.38 yuan.

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