Jittery market drops at midday break

By Lydia Chen  |   2008-6-11  |     ONLINE EDITION

SHANGHAI'S key stock index fell this morning as investors' dumped shares amid concern that a central bank order for lenders to set aside more reserves will hurt corporate earnings.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, lost 0.56 percent, or 17.27 points, to 3,055.96 at 11:30am.

The index dipped below 3,000 points during the morning session but soon bounced back.

The market sank 7.73 percent yesterday, the largest percentage drop since June 4, 2007, when it dived 8.26 percent.

Losers in the Shanghai market outnumbered gainers 585 to 211 while 10 remained unchanged.

The Shenzhen Composite Index, which tracks the smaller domestic stock exchange, was down 1.45 percent, or 13.43 points, to 914.79 this morning.

Merchants Bank, the nation's biggest dual-currency credit-card issuer, fell 3.40 percent to 24.45 yuan (US$3.53), extending yesterday's 10-percent slide. China Vanke, the nation's biggest listed property developer, lost 2.77 percent to 17.21 yuan.

Banks must put aside a record 17-percent of deposits in reserve starting June 15, rising to 17.5-percent on June 25, the People's Bank of China said on Saturday. 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.

The Shanghai index has fallen nearly 42 percent this year on concern government measures to keep price increases in check will erode earnings. Inflation accelerated to 8.5 percent in April, close to the fastest in almost 12 years.

Producer-price inflation accelerated in May to the fastest pace in more than three years, the National Bureau of Statistics reported today. Factory-gate prices rose 8.2 percent from a year earlier, after gaining 8.1 percent in April.