Stocks drop on inflation concerns

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

SHANGHAI'S key stock index fell today amid concern that the government may take more action to control inflation after a government report showed producer-price inflation accelerated last month.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, lost 1.57 percent, or 48.09 points, to 3,024.24 at 3pm.

The index dipped below 3,000 points during the morning session, the first time it had dropped below the psychologically important level since April.

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 621 to 185 today.

The Shenzhen Composite Index, which tracks the smaller domestic stock exchange, was down 2.71 percent, or 25.17 points, to 903.04.

China Merchants Bank, the nation's biggest dual-currency credit-card issuer, fell 4.78 percent to 24.10 yuan (US$3.48), extending yesterday's 10-percent slide. China Vanke, the nation's biggest listed property developer, lost 5.31 percent to 16.76 yuan.

Banks must put aside a record 17-percent of deposits in reserve starting June 15, which will rise 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.

The sharp decline has prompted calls for government action. China cut a tax on stock trading on April 23, the day after the Shanghai Composite last dipped below 3,000.