China A-shares end morning lower after bank reserve requirement hike-UPDATE

China A-shares end morning lower after bank reserve requirement hike-UPDATE

	Published : Fri, 07 Sep 2007 05:39 By : Agencies Print this Story

SHANGHAI (XFN-ASIA) - China A-shares ended the morning session lower after the central bank announced another hike in the bank reserve ratio, dealers said.

Banks were mixed, with the central bank's move of half a percentage point, the seventh hike this year, taking the reserve ratio to 12.5 pct for most lenders.

Property stocks were hit after the central bank also signalled a possible rate hike within the week.

The benchmark Shanghai Composite Index ended the morning down 21.89 points or 0.41 pct at 5,371.78, but well off the session's low of 5,284.12.

'The officially cited rationale for this reserve requirement increase remains mopping up excess liquidity and preventing excessive loan growth, but we feel that the increased pressure for the authorities to rein in the A share market rally provides another justification for more intense liquidity tightening,' said Jun Ma, chief economist at Deutsche Bank.

Analysts also attributed the market fall to the issue of special paper by the central bank, which in the past has preceded rate hikes.

'The sell-off is not only because of reserve requirement hike, but also due to the issue of special central bank paper,' Chen Huiqin, analyst at Huatai Securities.

The central bank will issue at least 150 bln in special three-year central bank paper at 3.7 pct, as part of ongoing moves to soak up excess liquidity in the banking system.

Today's issue is the fifth such placement this year. The PBoC has hiked official interest rates one week after such sales.

Chen said the broad declines in the property sector reflected investor worries about a possible interest rate hike.

China is set to announce consumer price index data for August on Tuesday, and the growth rate is expected to be even higher than the decade high of 5.6 pct in July.

China Vanke Co Ltd (SZA 000002; SZB 200002) was down 0.96 yuan at 32.33.

Poly Real Estate Group Co Ltd (SHA 600048) lost 2.03 yuan to 78.45.

Huadian Power International Corp Ltd (SHA 600027; HK 1071) fell 0.27 yuan to 9.20, while Huaneng Power International Inc (SHA 600011; HK 0902; NYSE HNP) lost 0.38 yuan to 14.93.

Banks declined early due to concerns that loan growth could be slowed by the need to set aside more reserves, but they ended the morning mixed.

Bank of China (SHA 601988; HK 3988) fell 0.09 yuan to 6.30, while Industrial and Commercial Bank of China (SHA 601398; HK 1398) fell 0.01 yuan to 6.94.

However, Huaxia Bank Co Ltd (SHA 600015) surged 2.07 yuan to 23.28, following a 10 pct rise in the previous session. Analysts were unaware of any concrete developments behind the gains.

China Nature Asset Management Co said in a note that the latest reserve requirement hike will have only a small impact on commercial bank's profits.

China Eastern Airlines Corp Ltd (SHA 600115; HK 0670; NYSE CEA) surged by the 10 pct daily limit for a fifth day to 15.47, after it announced an agreement to sell a stake to Singapore Airlines over the weekend.

The Shanghai A-share Index fell 23.29 points to 5,640.68 and the Shenzhen A-share Index was down 8.41 points at 1,553.47.

The FTSE/Xinhua China A 50 Index was down 115.69 points at 20,518.69, the FTSE/Xinhua China A 200 Index was down 91.23 points at 15,425.24 and the FTSE/Xinhua China A 600 Index was down 77.36 points at 13,200.25.

(1 usd = 7.54 yuan)

lilian.wu@xfn.com

xfnlw/xfntm

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