June 10 (Bloomberg) -- China's stocks plunged 8.1 percent, the most since February 2007, after the central bank ordered lenders to set aside record reserves to curb credit growth and inflation.

More than half of the benchmark stock measure's 300 members slumped by the 10 percent daily limit, dragging the CSI 300 Index 45 percent below its Oct. 16 record. The gauge fell 282.94 points to 3,206.56 in Shanghai, its lowest close since April 19, 2007. Shares resumed trading after a holiday yesterday.

Industrial & Commercial Bank of China Ltd. led banks lower after the central bank said June 7 it will raise the reserve ratio for the fifth time this year by a full percentage point, withdrawing about $61 billion from the financial system. China Vanke Co. dropped on concern institutions will curb loans to developers and home buyers. Air China Ltd. fell on concern surging oil prices will increase fuel costs.

``Panic is arising from a jolt of bad news,'' said Peter Chiang, Singapore-based chief equity strategist at DBS Asset Management Ltd., which oversees the equivalent of $18 billion. ``There are problems with inflation, China is slowing down and corporate earnings could be vulnerable.''

The CSI 300 has fallen 40 percent this year, the steepest decline among the world's 20 biggest equity markets, on concern measures to keep price increases in check will erode earnings. The rout has wiped at least $1.31 trillion from China's stock market and helped the CSI 300 close a price-earnings gap with the Standard & Poor's 500 Index to 3.1 percent from 127 percent at the start of 2008, data compiled by Bloomberg show.

Refiners Decline

Inflation accelerated to 8.5 percent in April, close to the fastest in almost 12 years. The rate slowed to 7.7 percent last month, according to two government officials who said they saw official data.

Today's drop on the CSI 300 was the biggest since Feb. 27, 2007, when the government approved a special taskforce to clamp down on illegal share offerings. Zhang Wangjun, a spokesman for the China Securities Regulatory Commission, declined to comment today. Lai Xiaomin, spokesman of China Banking Regulatory Commission, was not immediately available for comment.

PetroChina Co. and China Petroleum & Chemical Corp., the country's top oil refiners, slumped after the top economic planning body said fuel price caps are conducive to social stability, damping expectations the controls will be lifted.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 7.7 percent to 3,072.33, taking its drop this year to 42 percent. The Shenzhen Composite Index fell 8 percent to 928.2.

Record Reserves

Industrial & Commercial Bank, the nation's biggest listed lender known as ICBC, slid 8.4 percent to 5.38 yuan. Shanghai Pudong Development Bank Co., part-owned by Citigroup Inc., plunged 10 percent to 25.75 yuan.

China banks must put aside a record 17 percent of deposits as reserves starting June 15, rising to 17.5 percent from June 25, the People's Bank of China said on June 7. That's more than double the ratio for Indian lenders. China's central bank also raised interest rates six times last year to control inflation.

``The hike in the reserve ratio was higher than people expected and that affected already jittery sentiment,'' said James Liu, deputy chief investment officer at APS Asset Management in Shanghai, which oversees $1 billion. ``I didn't expect such a big drop.''

Vanke, the nation's biggest listed property developer, slid by the daily limit to 17.70 yuan. Poly Real Estate Group Co., China's second-largest developer by market value, tumbled by 10 percent to 15.94 yuan.

`Stay Away'

Air China, the world's biggest airline by market value, fell by the daily cap to 10.99 yuan. China Southern Airlines Co., the nation's biggest carrier by fleet size, lost 10 percent to 9.32 yuan. Jet fuel accounted for about 40 percent of Chinese airlines' costs in 2007, according to their annual reports.

Crude oil in New York jumped $10.75, the most ever, to a record of $138.54 a barrel on June 6. It recently traded at $133.41 a barrel in after-hours trading. Jet-fuel prices jumped 6.5 percent yesterday, taking gains this year to 56 percent.

``Either the reserve ratio increase or high oil prices is enough to make investors stay away from stocks,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages the equivalent of about $850 million.

PetroChina slumped 6 percent to 16.13 yuan, the biggest drag on the Shanghai Composite Index. China Petroleum tumbled 8.4 percent to 12.34 yuan Both refiners declined by the most since March 27.

Zhang Guobao, the vice chairman of the National Development and Reform Commission, said accelerating reforms of the pricing system would worsen the impact of rising crude-oil prices on China's farmers, according to a report in the China Securities Journal today. Zhang made the comments at a meeting of energy ministers in Japan on June 7, it said.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net

Last Updated: June 10, 2008 04:49 EDT