China's stocks fell after the government raised fuel prices

China's stocks fell, led by producers of consumer staples and banks after the government raised fuel prices and concern grew about the profitability of lenders as the government tightens monetary policy.

Kweichow Moutai Co. sank to a one-month low amid speculation in energy costs for businesses will increase, dampening growth in earnings, after
China

increased the price of petrol and diesel for the third time this year. Agricultural Bank of China Ltd. lost 0.8 percent after Barclays Capital said that senior government requirements on loans to local lenders reduced rates of capital and profits.

"High oil prices can encourage the acceleration of inflation, adding to the concerns of investors about future policy tightening," said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai.

The Shanghai Composite Index fell 26.22, or 0.9 percent, to 2,877.90 at the close 3 pm, the fifth decline in six days. The index rose 1.8 percent last military tensions on the Korean peninsula relieved. The CSI 300 Index fell 1.1 percent, at 3,215.45.

The Shanghai Composite is the worst performing stock indicator Asia this year with a loss of 12 percent amid concern monetary tightening will slow economic growth and incomes of moisture. The government has ordered banks to set aside more money as reserves and raised interest rates to cool inflation and rising property prices were driven by record loan growth in 2009.

An indicator tracking consumer staples fell 1.3 percent, a fourth day of falls and loss in the second largest among the CSI 300's 10 industry groups.

Fuel prices

Kweichow Moutai, the largest Chinese manufacturer of alcoholic beverages by market value, fell 1.6 percent to 190.95 yuan, fixed to the lowest close since Nov. 23. Tsingtao Brewery Co., the second largest brewer by volume, fell 2 percent to 35.79 yuan. Shenzhen Agricultural Products Co. fell 3.6 percent to 18.46 yuan.

The gasoline will go up by 4 percent to 310 yuan per ton and diesel by 300 yuan per ton, the National Development and Reform Commission, said. New York crude has gained 9 percent since China's last price increase on 26 October.

"This is a movement long overdue since the government is worried about inflation, while refiners are suffering losses after crude costs soared," said Wei Hei, oil analyst at Bank of Communications Co. Holdings Beijing International. "We believe the increase of 4 percent is far from sufficient to compensate for oil profits."

two largest oil refineries in China invested in early returns. China Petroleum and Chemical Corp. fell 0.4 percent to 8.23 yuan after moving up 2.4 percent. PetroChina Co. deleted an increase of 2.2 percent to trade 0.7 percent to 11.44 yuan.

Food Prices

Inflation in China accelerated to 5.1 percent last month from a year earlier, the biggest jump in 28 months. Chinese consumers are more concerned about rising prices at any time in the last decade, the People's Bank of China said on December 15 in its quarterly survey of 20,000 households.

The extent of follow-up of producers of consumer goods has risen 17 percent this year, food prices rose and investors sought companies protected from inflation. Food inflation reached 10 percent in October, more than double the global rate of 4.4 percent.

China stocks are ready for a "very strong" 2011, food prices ease of April, said Donald Straszheim, China research director at International Strategy & Investment Group.

"In March or April, food prices in China will be off the front pages, and active monetary tightening will be off the front pages as well," he wrote in a report. "That set the shares of China, on the sides of the past, volatile and fear-title driven by a strong 2011."

The tracking index of financial companies fell 1.6 percent, the biggest drop in the CSI 300 and extends a loss of 24 percent this year, which was driven by stringent restrictions on lending.

Bank Loans

The China Banking Regulatory Commission may require lenders to assign risk weights 100 percent for loans fully covered by cash flows from the current 50 percent, and as much as 300 percent for loans uncovered, Barclays said in a note today, citing a China Business News report published yesterday. The risk weight rule has been made official, the note said, citing unidentified banks.

Agricultural Bank, the third largest by assets, lost 1.1 percent to 2.62 yuan, the biggest fall since 08 December. China Construction Bank Corp. fell 0.4 percent to 4.70 yuan, extending a decline of 22 percent in 2010.

Agricultural Bank will be most affected by the change, analysts at Barclays May and Zhang Yan Allen wrote. The government is trying to limit the risks of increased borrowing last year to vehicles of local government finances roads, bridges and railways. Chinese banks may have difficulties in recovering about 23 percent of credit 7.7 trillion yuan (1.2 billion) that have expanded, a person with knowledge of the data collected by the industry regulator, said in July.