China's stocks fell, sending the benchmark index to its first monthly decline since June, as speculation that the government will increase interest rates and debt crises can spread threatened European economic outlook.
Industrial & Commercial Bank of China Ltd. losses for lenders pace after China Academy of Social Sciences economist said the government needs to increase borrowing costs by another 200 basis points. Kweichow Moutai and Harbin Pharmaceutical Group Co. led declines for consumer goods and stocks of drugs after industry groups exceeded the benchmarks of this month and the government reduced the prices of medicine to control inflation.
"Measures of adjustment of government, as increases in interest rates can go faster than the market expects, and that proved to be in the previous rounds," said Leo Gao, who helps oversee about $ 600 million in APS Asset Management Ltd . in Shanghai. "The stock market will face downward pressure."
The Shanghai Composite Index, which remains the largest stock exchanges in China, fell 46.18, or 1.6 percent, to close at 2,820.18. That ended a decrease of 5.3 percent this month, the first decline since June. The CSI 300 Index fell 1.7 percent to 3,136.99.
The Shanghai index has lost 11 percent since reaching a peak almost seven months, on 8 November when the government ordered banks to set the largest reserves set aside twice this month after raising rates Interest in October to fight inflation. Consumer prices rose 4.4 percent last month, more than 4 percent median forecast in a survey of 28 economists, the statistics bureau reported on 11 November.
Less liquidity
The repurchase rate seven days, which measures the availability of funds in the money market, rose 63 basis points to 3.31 percent, the highest since October 2008, according to a published tariff setting by the Center National Interbank Funding.
ICBC reduced rate for banks, slipping 2.1 percent to 4.20 yuan. China Construction Bank Corp. fell 1.7 percent to 4.62 yuan.
Recent increases in the reserve requirement ratio will not be enough to reverse the excessive liquidity in the system, Zhong Jiyin, an economist at the China Academy of Social Sciences, wrote in a commentary in today's China Daily.
China may see inflation accelerating this month from October prices driven up food costs, so it is "almost certain" that inflation will exceed 3 percent for the year, Sheng Songcheng, former director of the Shenyang branch of the central bank, wrote in a commentary in the official Financial News.
The central bank should clearly indicate that is changing at a "prudent" monetary policy and allow the yuan to fight rising inflation, said Sheng. There is scope for further increases in reserve requirements for banks, Sheng wrote.
Economic Conference
The government will hold an annual economic conference in Beijing late next week to establish guidelines for monetary and fiscal policy in 2011, two people briefed on the matter, he said.
Officials may consider the objectives of loans and inflation in the December 10-12 meeting, one person said, speaking on condition of anonymity.
The purchasing managers index, a gauge of manufacturing could increase to 54.8 percent this month from 54.7 percent last month, according to the median estimate of economists surveyed by us. The measure is scheduled to be released tomorrow.
An indicator of consumer goods companies slipped for the first time in nine days, losing 3.2 percent. Kweichow Moutai, a spirits maker, fell 5.4 percent to 204.81 yuan, to reduce profits this month to 26 percent. Rival Wuliangye Yibin fell 4 percent to 39.13 yuan. The measure won 10 percent this month, most among the 10 industry groups.
Citigroup 'bullish'
Harbin Pharmaceutical led declines by drug manufacturers, sliding 3.5 percent to 24.92 yuan. The health indicator has increased by 4.5 percent this month for the second best performance among the groups.
China will reduce the prices of 17 types of drugs such as antibiotics and cardiovascular drugs from December 12, the National Development and Reform Commission, said today. The cuts were announced after the national planning agency, above, said in an urgent appeal on 23 November will cut prices of selected drugs to stabilize costs in the country.
Property developers fell after Moody's Investors Service said it has a stable outlook for China's property sector, despite a "moderate correction to the bottom" in prices is expected during 2011.
China Vanke Co., the country's largest developer by market value, fell 0.5 percent to 8.13 yuan. Poly Real Estate Group Co. lost 1.3 percent to 12.12 yuan.
Ticket Fund
Emerging markets funds have capital in 84.3 billion U.S. dollars this year, surpassing the record $ 83,300,000,000 received last year, EPFR Global said in a statement via email. China sent its biggest weekly earnings in the week to November 24 since September, he said.
"The liquidity-driven rally is likely to continue over the next six months," wrote Citigroup Inc. analysts led by Shen Minggao in a note to clients. "We remain optimistic about China."
The A-share index may touch 3,800 to 4,000 in 2011, they said. Given the inflationary environment and prospects for further yuan appreciation, Citigroup said he recommended an "overweight" allocation for cement companies, automobile manufacturers, health care companies and technology stocks.
World stocks extended losses into a fourth week, the euro depreciated by 85 Ireland million (113 billion) bailout to alleviate the concern not most indebted countries in the region will need additional help.
European debt
Ireland, flooded by the bursting of a housing bubble a decade and unemployment is about 14 percent, became the second country to take advantage of European aid. Spain is the "big elephant" in the European debt crisis and can not be enough money to rescue the Iberian nation, "said Nouriel Roubini, chairman of Roubini Global Economics, who predicted the 2008 global economic crisis.
Europe is the largest export market for China, which accounts for about 20 percent of overseas shipments of the nation.
The Shanghai index has rebounded 19 percent since reaching this year under the 5 July on expectations central banks worldwide will inject more money into their economies to boost growth. The rate remains 14 percent this year, the benchmark worst performing in Asia, after the government tightened monetary policy and curb lending growth to cool the economy.
"The rebound is doomed to be short," said Li Jun, a strategist at Central China Securities Co. in Shanghai. "With less liquidity and a weakening global economy, there is significant support for a large increase."
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