June 11 (Bloomberg) -- China's stocks fell for a sixth day, the longest losing streak since August 2006, as higher producer prices fanned concerns the government will step up measures to tame inflation.

China Merchants Bank Co. and China Vanke Co. led banks and real-estate companies lower on concern new policies will curtail economic growth and hurt corporate earnings. Today's declines sent the Shanghai Composite Index below 3,000 for the first time since April.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two bourses, fell 2.1 percent to 3,140.30, the lowest close since April 11, 2007. It slumped 8.1 percent yesterday, the most since February 2007, after the People's Bank of China asked banks to set aside record reserves to curb credit growth and inflation.

``The market was caught off guard by the hike in the bank reserve ratio, and there's still concern about inflation and corporate profits,'' said Philippe Zhang, Shanghai-based chief investment officer at AXA SA's China fund management joint venture, which manages $250 million. ``It'll take some time to work through the uncertainty.''

The CSI 300 is down 41 percent this year, the largest drop among benchmark indexes from the world's 20 biggest equity markets, as inflation accelerated to 8.5 percent in April, close to the fastest in almost 12 years. Chinese equities have lost more than $1.8 trillion in value from their Jan. 14 peak, almost the size of Germany's stock market capitalization.

Government Action?

The declines have prompted calls for government action. China cut a tax on stock trading on April 23, the day after the Shanghai Composite last dipped below 3,000.

Regulators may introduce margin financing, stock lending and borrowing, or slow down the approval of new share sales to limit supply, Fraser Howie, an analyst at CLSA Ltd. and co- author of the book ``Privatizing China: The Stock Markets and Their Role in Corporate Reform,'' said by phone from London yesterday.

``One can only hope the authorities will step in with some policy measures or say something to soothe the market,'' said Li Zegang, a Beijing-based portfolio manager at ABN Amro Teda Fund Management Co., which oversees about $3 billion. ``The prognosis, though, is for a continued fall.''

The CSI 300's decline today capped a six-day, 13 percent fall, which was the longest losing streak since a nine-day drop through Aug. 7, 2006. The Shanghai Composite Index, which measures the bigger of the country's two exchanges, lost 1.6 percent to 3,024.24. It fell to as low as 2,992.35 today. The Shenzhen Composite slumped 2.7 percent to 903.035.

Banks, Developers Decline

Merchants Bank, the nation's biggest dual-currency credit- card issuer, fell 4.8 percent to 24.10 yuan, extending yesterday's 10 percent slide. Vanke, the country's largest listed property developer, lost 5.3 percent to 16.76 yuan.

China's producer-price inflation accelerated in May to the fastest pace in more than three years, the statistics bureau reported today. Factory-gate prices rose 8.2 percent from a year earlier, after gaining 8.1 percent in April. The statistics bureau is due to release its May consumer-price index tomorrow.

Industrial & Commercial Bank of China Ltd., the nation's biggest listed lender, dropped 2.4 percent to 5.25 yuan. Poly Real Estate Group Co., China's second-largest developer by market value, retreated 7.1 percent to 14.81 yuan.

``The rise in the PPI threatens to feed through into sustained higher levels of CPI,'' said Jing Ulrich, Hong Kong- based chairwoman of China equities at JPMorgan Chase & Co., in an e-mail after today's report. ``Higher structural core inflation may be an ongoing concern for policy makers and investors in the Chinese economy.''

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 11, 2008 04:05 EDT