China’s Stocks Drop on Concern Over Inflation, Slowing Growth

China’s stocks fell for the third time in four days as a jump in the nation’s food prices fueled concern inflation will quicken and Greece’s debt crisis boosted speculation global economic growth will slow.

Industrial & Commercial Bank of China (601398) Ltd., the world’s biggest bank by market value, led losses for lenders after money-market rates jumped the most in three months. Anhui Conch Cement Co., China’s largest cement maker, slid to the lowest level in two months after Goldman Sachs Group Inc. said stock gains for building materials makers may be “muted.” Baoshan Iron & Steel Co. declined 1.3 percent after Xinhua News Agency said the company faces power curbs in the next three months.

“The market will continue to face downward pressure amid tightening and lack of liquidity,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “The chance of a rally is slim this year as companies’ earnings may not be able to maintain robust growth.”

The Shanghai Composite Index lost 22 points, or 0.8 percent, to 2,849.07 at the 3 p.m. close. The measure rose 0.3 percent last week, its first advance in four weeks. The CSI 300 Index (SHSZ300) fell 0.9 percent to 3,100.46 today.

The Shanghai Composite has retreated 6.8 percent from a five-month high on April 18 amid concern the central bank will add to four increases in interest rates since early last year to cool inflation. It has also boosted banks’ reserve requirements five times this year to mop up liquidity. The gauge has advanced 1.5 percent this year.

Tighter Liquidity

China’s money-market rate rose on speculation a jump in banks’ reserve ratios to a record high will lead to a cash squeeze in the financial system. The seven-day repurchase rate, a gauge of interbank funding availability, has surged 224 basis points in the past two trading days.

ICBC sank 1.5 percent to 4.51 yuan, the biggest drop since April 19. China Construction Bank Corp. (939), the second-largest lender, lost 1 percent to 5.07 yuan.

China still faces inflationary pressure and consumer prices haven’t peaked, Shanghai Securities News reported, citing Yu Bin, director general of the macroeconomic research department of the State Council’s development research center. The economy faces a slowdown, the newspaper cited Yu as saying.

Pork prices in China on May 14 increased 44 percent from a year earlier due to tight supplies, Xinhua News Agency reported yesterday. Egg prices have risen 24 percent from a year earlier, Xinhua reported, citing its own monitoring system.

Inflation Concerns

China’s inflation won’t recede soon and the government will probably continue to tighten monetary and fiscal policies, the Shanghai Securities News reported, citing an interview with John Lipsky, the first deputy managing director of the International Monetary Fund.

Anhui Conch plunged 4.3 percent to 35.09 yuan, its lowest close since March 15. Goldman Sachs said the “short-term return potential may be muted” for building material and coal stocks. Jiangxi Copper Co., the nation’s biggest producer of the metal, lost 1.9 percent to 32.93 yuan.

Greece today will plead for a boost in its 110 billion-euro ($155 billion) financial lifeline from European governments and the International Monetary Fund, in talks clouded by the arrest of IMF Managing Director Dominique Strauss-Kahn for attempted rape. The euro tumbled to a six-week low last week as Germany put up hurdles to an expanded package. The European Union is China’s biggest export market.

Baoshan Iron & Steel slid 1.3 percent to 6.62 yuan, the lowest close since Jan. 21. The company will face power curbs from June to September, the official Xinhua News Agency reported, citing an unidentified official with its parent. Hebei Iron & Steel Co. slipped 2.7 percent to 4.37 yuan.

--Irene Shen. Editors: Allen Wan, Shiyin Chen

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at +86-21-6104-3049 or Ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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