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China’s Stocks Fall Most in Six Months on Train Crash, U.S. Debt

China’s stocks fell the most in six months as railway shares plunged after a deadly bullet-train accident, while a political stalemate over the U.S. debt limit boosted concern the world’s biggest economy will default.

CSR Corp. and China CNR Corp., the nation’s biggest train makers, tumbled more than 8 percent after the weekend train collision killed at least 36 people and prompted the government to order a rail safety inspection. China Vanke Co. led declines for developers as Credit Suisse Group AG said the accident may damp demand for real estate in cities along new railway lines.

“The train crash may trigger an investment cut in railway construction,” said Tu Jun, a strategist at Shanghai Securities Co. “The failure to reach agreement on the U.S. federal debt limit is hurting investors’ confidence in the economic recovery. All the weekend news is bad for stocks.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slumped 82 points, or 3 percent, to 2,688.75 at the 3 p.m. close, the most since Jan. 17. The measure dropped 1.8 percent last week, the first decline in five weeks. The Shanghai index has slumped 4.3 percent this year, compared with a 0.8 percent retreat for the MSCI Emerging-Markets Index, on concern the government’s efforts to curb inflation will hurt economic growth.

The central bank has raised interest rates five times and the reserve-requirement ratio 12 times since the start of 2010 to stem inflation. Consumer prices rose 6.4 percent in June, the fastest pace in three years, as food costs increased.

Train Stocks

CSR plunged 8.9 percent to 6.04 yuan, its lowest close since Oct. 29. China CNR dropped 9.7 percent to 5.87 yuan, the most since its listing in December 2009. Gem-Year Industrial Co., which makes carriage components, fell by the 10 percent daily limit to 16.65 yuan.

China ordered a two-month inspection of rail safety and fired three officials after at least 36 people were killed in a high-speed train crash two days ago near the eastern city of Wenzhou. The collision will slow the pace of railway construction, according to Guotai Junan Securities Co. The growth of equipment companies will be affected, it said. The railway ministry will postpone auctions for equipment, Shenyin & Wanguo Securities Co. analysts said, cutting their stock ratings for CSR and CNR to “neutral.”

China Vanke, the nation’s largest developer by market value, slid 3.3 percent to 8.14 yuan. Poly Real Estate Group Co. slipped 4.6 percent to 10.23 yuan.

The train accident, along with “constant malfunctioning” of the Beijing-Shanghai bullet train, may damp demand for property in cities along new railway lines, Credit Suisse said.

Land sales in “several” cities along the new Beijing-Shanghai high-speed railway line surged in 2009 and 2010, analysts including Jinsong Du wrote in a report.

Global Economy

U.S. House Speaker John Boehner told Republicans that there’s no agreement on a plan for raising the ceiling before a default threatened for Aug. 2. A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing. The impasse has boosted the chance S&P will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.

China needn’t take the risk of a U.S. default seriously as politicians in Washington will reach a deal on the debt limit in the end, said Zhu Baoliang, chief economist at the State Information Center, a state-backed research organization in Beijing under the National Development and Reform Commission.

Although the stalemate in the talks over the debt limit is “not good news for big creditors such as China and Japan, there’s not much they can do,” Zhu said in a telephone interview with Bloomberg News today.

Greece Crisis

Commodity producers also dropped on concern debt crises in U.S. and Europe will hurt the global economic recovery. PetroChina Co., the nation’s largest oil producer, lost 2.1 percent to 10.36 yuan, the lowest close since Sept. 30. Jiangxi Copper Co., the biggest copper producer, slid 2.5 percent to 34.85 yuan.

Moody’s Investors Service cut Greece’s sovereign credit rating by three steps today, saying the European Union’s financing package for the debt-laden nation implies “substantial economic losses” for private creditors.

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