Thursday, January 7, 2010

China Share Fall After Report Of Lower Ending Goal

. Thursday, January 7, 2010

By stockOzone team

China's shares fell Thursday after an unexpected increase in a key interbank market interest rate triggered a broad decline in heavyweight blue chips.

Analysts said the People's Bank of China's move signals a change in its policy focus toward pre-empting inflation risks in the new year.

The benchmark Shanghai Composite Index, which tracks both A and B shares, ended down 1.9% at 3192.78, after trading between 3176.71 and 3268.82.

The Shenzhen Composite Index fell 1.9% to 1179.99.

Analysts said the index could extend losses in coming days as investors are concerned the authorities may introduce further tightening measures. Analysts set the index's next support at the 120-day moving average of 3113.07.

In its weekly open-market operation, the central bank sold CNY60 billion (US$8.8 billion) worth of three-month bills at 1.3684% Thursday, after keeping the yield unchanged at 1.3280% since Aug. 13.

"The PBOC's unexpected move makes inflation and rate-hike worries more real," said Zhang Gang, an analyst at Southwest Securities.

"What also concerns investors is a lack of fresh news on index futures. Some investors bought heavyweight blue chips purely on hopes of an immediate launch of the new products," Zhang added.

Securities firms and other blue chips rose sharply during the last week of 2009 on expectations China's securities regulator may soon introduce futures contracts on stock indexes.

Investors trimmed their positions in financial companies and steel companies Thursday. China Merchants Bank fell 2.6% to CNY16.91, Citic Securities slid 2.4% to CNY31.65, Baoshan Iron & Steel dropped 4.9% to CNY9.03 and Wuhan Iron & Steel ended down 3.1% at CNY7.88.

Auto companies also fell due to market expectations car sales won't grow as quickly this year as they did last year.

Analysts have said they expect vehicle sales in China to grow by as little as 5%-6% this year, after the roughly 50% surge in 2009.

"Auto makers and other consumer companies' valuations look high now. They don't have much upside unless we see stronger-than-expected retail sales data," said Dai Shuang, an analyst at United Securities.

SAIC Motor fell 4.4% to CNY24.12, and Chongqing Changan Automobile ended 4.9% lower at CNY13.50.

Disclosure: Author does not own any of the stocks discussed here.

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