Market plunges as bank shares hammered

By Lydia Chen  |   2008-6-10  |     ONLINE EDITION

SHANGHAI'S key stock index lost more than 5.5 percent in the morning session after the central bank told lenders to set aside a record amount of money in reserve to curtail inflation.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, sank 5.67 percent, or 188.87 points, to 3,140.80 at 11:30am.

Losers in the Shanghai market outnumbered gainers 791 to 15.

The Shenzhen Composite Index, which tracks the smaller domestic stock exchange, was down 1.20 percent, or 12.44 points, to 1,021.26.

Industrial & Commercial Bank of China Ltd led banks lower as the increased reserves reduces the amount of money available for lending. China Vanke Co dropped on speculation the policy will curb property developers' access to financing for real estate purchases. Air China Ltd retreated as a surge in oil prompted concern fuel costs will increase.

ICBC, the nation's biggest listed lender slumped 6.81 percent to 5.47 yuan (79 US cents). China Construction Bank Corp, the country's second-largest, fell 5.88 percent to 6.56 yuan. China Merchants Bank Co, the nation's biggest dual-currency credit-card issuer, lost 8.18 percent to 25.82 yuan.

Banks must put aside a record 17 percent of deposits as reserves starting June 15, rising to 17.5 percent on June 25, the People's Bank of China said on June 7. It's the fifth time this year that the central bank has raised the reserve ratio. The move will drain about 422 billion yuan from the financial system.

The central bank raised interest rates six times last year to curb inflation that accelerated to 8.5 percent in April, close to an 11-year high.

China Vanke, the nation's biggest listed property developer, slid 9.1 percent to 17.88 yuan. Poly Real Estate Group Co, China's second-largest developer by market value, dropped the daily cap of 10 percent to 15.94 yuan.