China stocks fell the most in a month

China stocks fell the most in a month as tensions on the Korean peninsula fueled a sell-off in risky assets, adding to the lingering concerns of investors that the government may raise interest rates to control inflation.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd. fell more than 3 percent of commodity prices fell and the dollar rose after South Korea said it will continue with a live fire drill carried Korea North of threats of retaliation. Kangmei Pharmaceutical Co. led a retreat among health-care companies after the Economic Observer said the government could reduce drug prices by 40 percent.

"Tension on the Korean peninsula can be fed investor pessimism about the end of year," said Wu Yang, associate director of Guotai Junan Futures Research Institute. "The market is always beaten by such shocks."

The Shanghai Composite Index, which remains the largest stock exchanges in China, fell 60 points, or 2 percent, to 2836.75 at 2:11 pm, the most since Nov. 23. The CSI 300 index fell 2 percent to 3,162.72, led by healthcare companies.

South Korea started a live-firing drill, plans for leading the North Korean threat of retaliation, because the Security Council failed to agree on measures to ease the tension on the peninsula.

artillery positions on the island of Yeonpyeong, which was bombed by the North last month, started the year at 2.30 pm local time after the fog cleared, said a Defence Ministry official who requested anonymity, citing policy government. North Korea and China are communist allies.

Jiangxi Copper, the largest copper producer, fell 3.9 percent to 38.88 yuan. Aluminum Corp. of China fell 2.8 percent to 10.09 yuan.

Rate of concern

Copper futures prices fell 0.3 percent in Shanghai. The dollar advanced to $ 1.3150 per euro as of 11:33 am in Tokyo from $ 1.3188 in New York on December 17, after reaching $ 1.3125, the highest since December 2 .

The Shanghai Composite Index, the worst performer among the major benchmarks in Asia this year, has fallen 10 percent since reaching a peak almost seven months, on 8 November, the concern that monetary tightening to curb economic growth. The index has lost 14 percent this year.

"People are still worried about further tightening policy, such as increases in interest rates," said Larry Wan, the Beijing-based head of investment in Union Life Asset Management Co., which oversees the equivalent of $ 2,210,000,000. "The government has not increased rates, however, as had been speculated in the market. It's like a sword hanging over the market."

China Construction Bank Corp. rate of decline for lenders, falling 1.7 percent to 4.63 yuan. Kweichow Moutai Co., the largest Chinese manufacturer of alcoholic beverages by market value, fell 4.6 percent to 195 yuan.

Rate Outlook

China's inflation could exceed 5 percent to 6 percent in some months of next year, the People's Daily reported today, citing Ba Shusong, a researcher at the Center of State Council Development Research. Inflation may be 4 to 5 percent for all of 2011, Ba was quoted as saying.

Central bank governor Zhou Xiaochuan said the government moves securities account when making policies.

"We are doing everything possible in making policy decisions to take the stock market's reaction into account," China Central Television reported on 18 December, citing Zhou. "But when you have only a limited number of policy instruments, which can hardly cover all the bases."

China raised interest rates in October for the first time since 2007, inflation reached 4.4 percent on an annual basis, the highest since September 2008. Since then, the central bank has raised reserve requirements for lenders three times in five weeks. The last increase was on 10 December.

Drug makers fall

National Development and Reform Commission may reduce drug prices by an average of 40 percent of 658 different items for the fourth time since 2009, the Economic Observer reported today, citing unidentified officials from drug companies.

One indicator of population health care, fell 3.3 percent today, the most among 10 industry groups in the CSI 300.

Pharmaceutical Kangmei lost 6.2 percent to 20.80 yuan. Beijing Tiantan Biological Products Corp. retreated 3.6 percent to 23.03 yuan, while North China Pharmaceutical Co. fell 4.3 percent to 16.18 yuan.

China stocks face "headwinds" of optimism among retail investors, the volatility of the rise and the dollar, the China International Capital Corp.

Lower expectations of yuan appreciation, based on non-deliverable twelve months, to "cold water" on the view that currency gains will be used as a tool to combat inflation, Hong Hao, global equity strategist Beijing-based venture, wrote in a report today.

NDF in twelve months fell 0.23 percent to 6.5339 per dollar, from 9:38 am in Hong Kong. It reflects the commitment of the currency will strengthen 1.9 percent in a year.