China’s Stocks Post Steepest Weekly Loss in Four Months

China’s stocks fell, capping the benchmark index’s biggest weekly loss in four months, amid concerns a cash crunch may curb economic growth and the U.S. Federal Reserve will reduce stimulus.

China Construction Bank Corp. (601939) slid 3.8 percent, leading declines for lenders. Everbright Securities Co. sank 6 percent after it received a notice from the regulator that it was probing the brokerage on a planned initial public offering. PetroChina Co., the biggest energy producer, fell 1.6 percent, while Yanzhou Coal Mining Co. slid a further 4.9 percent for a 15 percent loss this week. Gemdale Corp. rose the most in three weeks after winning housing land at auctions.

The Shanghai Composite Index (SHCOMP) declined 0.5 percent to 2,073.10 at the close. The gauge slumped 4.1 percent this week, the most since Feb. 22. Money-market rates tumbled after jumping to records yesterday as the monetary authority refrained from using open-market operations to address a cash squeeze.

“The economy’s not performing within expectations, the Fed is causing volatility among global markets and our shortage of liquidity is creating a big issue,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone. “There may only be a rebound in the market at the start of July when the credit crunch is likely to improve.”

The CSI 300 Index declined 0.2 percent to 2,317.39 today, while the Hang Seng China Enterprises Index retreated 0.3 percent. The Bloomberg China-US Equity Index tumbled 3.6 percent yesterday as global equities fell after the Federal Reserve said it may phase out stimulus.

Repo Rates

The Shanghai index’s trading volumes were 19 percent below the 30-day moving average today, while 30-day volatility was at 16.7, compared with this year’s low of 13.7 set on June 7, according to data compiled by Bloomberg. The Shanghai measure has slumped 15 percent from this year’s high on Feb. 6.

China Construction Bank paced losses for lenders. The shares fell 3.8 percent to 4.08 yuan, adding to a 13 percent loss this week. Industrial Bank Co. retreated 1.2 percent, extending its drop this week to 6.4 percent.

The one-day repo rate decreased 3.84 percentage points to 7.90 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That is the biggest drop since 2007. The seven-day rate fell 351 basis points to 8.11 percent. They touched record highs yesterday of 13.91 percent and 12.45 percent, respectively.

The People’s Bank of China used reverse-repurchase agreements to inject funds to selected banks, Hexun reported today, citing an unidentified person close to the central bank. Hexun is a financial news website in China.

Stable Liquidity

The PBOC may increase open market adjustments to keep “reasonable and stable” inter-bank liquidity, the Financial News, which is published by the People’s Bank of China, reported, citing an unidentified market analyst. China’s economic slowdown risks may rise in the short term as policymakers may keep prudent policies to control financial risks, according to the report.

“The current level of tightness in real market rates is excessive and, if continued, may disrupt growth rather than make it more balanced,” said Dariusz Kowalczyk, a strategist in Hong Kong at Credit Agricole CIB. “Balancing growth would be achieved easier by boosting consumption, not by restricting credit. I think they will ease monetary settings soon, via open-market operations or reserve-requirement ratio cuts.”

Combat Fraud

PetroChina lost 1.6 percent to a record low 7.88 yuan. Yanzhou Coal slumped 4.9 percent to 10.71 yuan. West Texas Intermediate crude was poised for the biggest weekly drop since April on speculation the U.S. may scale back economic stimulus.

Fed Chairman Ben S. Bernanke will cut the central bank’s $85 billion in monthly bond purchases by $20 billion at the Sept. 17-18 policy meeting, according to 44 percent of economists in a Bloomberg survey.

Everbright retreated 6 percent to 10.96 yuan. The brokerage said it’s being investigated by China’s securities regulator for an IPO it advised on as authorities crack down on brokerages for inadequate due diligence in listings.

The CSRC handed out punishments last month to Ping An Securities Co., Minsheng Securities Co. and Nanjing Securities Co. as part of efforts to combat fraud. The regulator, which stopped IPO approvals in October as China’s benchmark stock index fell, will restart listings after rules aimed at boosting investor protection go into effect, a CSRC official with knowledge of the matter said this week.

Gemdale Corp. rose 1.8 percent to 6.66 yuan. The developer will pay 2.87 billion yuan ($470 million) for a parcel of land in Nanjing city and 122.5 million yuan for land in Zhengzhou city, the company said in a statement.

-- Editors: Allen Wan, Chan Tien Hin

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net;

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

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