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China’s Stocks Drop for Eighth Day on Concern Over Funding Costs

Dec. 19 (Bloomberg) -- China’s stocks fell for an eighth day, capping the benchmark index’s longest losing streak since June, on concern higher funding costs will hurt economic growth. Financial, industrial and drug companies led declines.

China Minsheng Banking Corp. and Poly Real Estate Group paced a retreat for lenders and property developers with losses of more than 2 percent. China Shipbuilding Industry Co., a supplier to the country’s navy, slid to the lowest level in five weeks. Jiangsu Hengrui Medicine Co. plunged 2.9 percent, dragging down health-care companies.

The Shanghai Composite Index slumped 1 percent to 2,127.79 at the close, extending a loss since Dec. 9 to 4.9 percent. The seven-day repo rate, a gauge of funding availability in the banking system, rose to the highest level since the cash crunch in June amid concern liquidity will tighten before new share offerings resume next month.

“Liquidity is still tight at the end of the year and there’s still downward pressure due to new stock supply in January,” said Zhang Haidong, an analyst at Tebon Securities Co. in Shanghai. “Until we see concrete evidence that the economy is going to be strong again, the market will remain weak.”

The CSI 300 Index slid 1.1 percent to 2,332.41. The Hang Seng China Enterprises Index slipped 0.8 percent. The H-shares gauge rallied 1.1 percent earlier after the Federal Reserve said that it will trim its monthly bond purchases to $75 billion from $85 billion. The Bloomberg China-US Equity Index jumped 1.7 percent yesterday after the Standard & Poor’s 500 Index surged to a record on the Fed announcement.

Fed Action

A gauge of financial companies in the CSI 300 dropped 1.3 percent, the second-most among 10 industry groups. China Minsheng Banking dropped 2.8 percent to 7.88 yuan. Huaxia Bank Co. slumped 3.3 percent to 7.87 yuan. Poly Real Estate, the second-biggest developer, lost 2.2 percent to 8.40 yuan.

The seven-day repo rate increased 72 basis points to 7.02 percent, after a 153 basis point jump yesterday that was the biggest since June, according to a weighted average compiled by the National Interbank Funding Center. A basis point is 0.01 percentage point. Interest-rate swaps jumped the most since July, touching a record.

Borrowing costs are climbing in China as the government gives market forces a greater influence in determining interest rates and the central bank holds off from adding funds. The monetary authority typically conducts money-market operations on Tuesdays and Thursday each week and has refrained from conducting reverse-repurchase contracts since Dec. 3.

Trading Slumps

Trading volumes in the Shanghai index were 35 percent lower than the 30-day average today after plunging to the lowest level in more than five months yesterday.

The gauge has fallen 4.2 percent this month, extending this year’s loss to 6.2 percent, after a manufacturing index from HSBC Holdings Plc and Markit Economics showed an unexpected decline and regulators said initial public offerings, which have been suspended since October 2012, would resume in January.

China Shipbuilding Industry declined 3.1 percent to 5.59 yuan. China CSSC Holdings Ltd. retreated 3.8 percent to 20.72 yuan. Jiangsu Hengrui Medicine plunged 2.9 percent to 35.73. Humanwell Healthcare (Group) Co. slid 2.7 percent to 25.42 yuan.

Fifty companies may complete IPO procedures in China in January, the China Securities Journal reported. Chinese regulators have halted IPOs since last year to stem slumping stock prices.

“The Fed action is positive on sentiment but we price in that in a very short time as we are still a rather insular market,” said Zhang Gang, a strategist at Central China Securities in Shanghai. “Investors redirected their focus on local fundamentals and our recent concerns include tight liquidity at the end of the year, worries about new IPOs in January and not-that-great HSBC data.”

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

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net

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