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China Stocks Drop From 6-Month High on Inflation, Valuations

China’s stocks dropped from a six-month high, led by consumer companies, on concern an increase in fuel prices will stoke inflation and that recent gains were excessive relative to the outlook for earnings.

Liquor maker Kweichow Moutai Co. fell for the first time in eight days amid concern higher energy costs will curb profit. PetroChina Co., the nation’s second-largest oil refiner, rose 1 percent after the government raised retail gasoline and diesel prices. Ping An Insurance (Group) Co., the second-biggest insurer, slid 4.2 percent after a shareholder reduced its stake.

“Inflationary pressure remains after the fuel price increase,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Investors will probably wait to see how inflation will be in coming months before they act next.”

The Shanghai Composite Index slipped 9.88, or 0.3 percent, to 3,041.54 at the 3 p.m. close. About six stocks rose for every five that fell on the gauge, which has jumped 15 percent this month, the best performer among the 89 benchmark indexes tracked globally by Bloomberg. The CSI 300 Index lost 0.4 percent to 3,466.08 today.

The Shanghai Composite, which yesterday closed at its highest since April 16, is now valued at 20.3 times earnings, compared with 17 times in early July, according to weekly data compiled by Bloomberg. The 14-day relative strength measure for the Shanghai measure, measuring how rapidly prices have advanced or dropped during a specified time period, was at 79 yesterday. Readings above 70 indicate a price may be poised to fall.

Fuel Prices

The ceiling for gasoline prices will rise by 230 yuan ($34.50) a metric ton today and diesel prices will gain 220 yuan a ton, the National Development and Reform Commission, the top economic planner, said yesterday. The NDRC’s last fuel-price adjustment was in June, when the costs were cut.

Higher gasoline and diesel prices will add to costs for manufacturers and farmers and increase inflationary risks. Consumer-price growth quickened to 3.6 percent in September.

An index of consumer-staples producers retreated 1.4 percent, the most in almost two weeks and the biggest decline among the 10 industries of the CSI 300. Moutai, China’s biggest producer of baijiu liquor by market value, fell 2.3 percent to 169.01 yuan, snapping a seven-day, 9.2 percent advance. Sichuan New Hope Agribusiness Co., a producer of animal feeds, lost 4.3 percent to 19.90 yuan.

While higher fuel charges will affect inflation expectations “to some extent,” the effect on overall prices will be “very small,” the planning agency said in a separate statement yesterday. The stronger value of the yuan reduced the extent of the increase, it said.

Second-Half Rally

China’s consumer price index in October will be higher than the growth a month earlier, the China Securities Journal reported yesterday, citing Yao Jingyuan, chief economist at the National Statistics Bureau. Consumer prices rose 3.6 percent in September, the fastest pace in almost two years, the statistics bureau said last week.

PetroChina advanced 1 percent to 11.56 yuan. Sinopec Shanghai Petrochemical Co., a unit of China’s biggest oil refiner, rose 1.1 percent to 9.10 yuan.

The Shanghai Composite has gained 27 percent in the second half of 2010, rebounding from a 27 percent loss in the first six months that was spurred by government moves to curb new lending and limit property speculation. The gauge is still down 7.2 percent this year.

Developers advanced today after Poly Real Estate Group Co. reported a 70 percent increase in third-quarter earnings. Poly Real Estate, China’s second-largest property company by market value, jumped 3.3 percent to 14.63 yuan. Gemdale Corp. climbed 0.9 percent to 6.97 yuan.

Ping An

Ping An, China’s second-biggest insurer, slid 4.2 percent to 64.02 yuan. Shareholder Shenzhen New Horse Investment Development Co. said it sold 12.8 million shares, reducing its holdings in Ping An to 4.93 percent from 5.1 percent.

China Railway Construction Corp., builder of more than half the nation’s rail links since 1949, slumped 5.2 percent to 7.59 yuan after saying it will book a loss of 4.15 billion yuan on its Mecca light-rail project, pending compensation talks with the client.

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