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China Stocks Drop to Four-Month Low as Money-Market Rates Fall

China’s stocks fell to the lowest level in four months, led by coal and auto shares, amid investor disappointment the government didn’t take further measures to ease a cash crunch. Money-market rates eased for a third day.

Yanzhou Coal Mining Co. slid to a five-year low on concern the government will cut coal use to reduce air pollution. Chongqing Changan Automobile Co., a partner of Mazda Motor Corp., sank 3.6 percent on concern rising tensions between China and Japan will hurt sales. Apple Inc. supplier GoerTek Inc. and phone-equipment maker ZTE Corp. paced declines among technology and telecom stocks that were among this year’s best performers.

The Shanghai Composite Index lost 1.6 percent to 2,073.10 at the close, the lowest level since Aug. 23. The People’s Bank of China didn’t conduct reverse-repurchase operations today, after injecting funds into the inter-bank market for the first time in three weeks on Dec. 24 to ease a cash crunch that drove capital costs to the highest level since June.

“Money-market rates are traditionally high at the end of the year and the situation won’t improve much until early next year,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. “Stocks will remain volatile before the money crunch eases.”

The Shanghai Composite has fallen 8.6 percent this year amid concern liquidity will tighten before the resumption of new share offerings next month. It trades at 8 times projected profit for the next 12 months, the cheapest since July 31, according to data compiled by Bloomberg. Trading volumes today were 27 percent below the 30-day average.

Repo Rates

The seven-day repurchase rate, a gauge of funding availability in the banking system, declined 24 basis points to 5.33 percent in Shanghai. The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo rate, was unchanged at 5 percent. It touched a record 5.13 percent on Dec. 23.

The yuan was little changed at 6.0719 per dollar, near the highest level since 1993.

The CSI 300 Index lost 1.7 percent to 2,265.33 today. The Hong Kong market was closed for the holidays.

Yanzhou Coal plunged 3.1 percent to 8.75 yuan. China Shenhua Energy Co., the largest coal producer, fell 1.6 percent.

China’s cabinet, the State Council, listed worsening pollution as among the looming challenges the country faces in a report to the legislature, the official Xinhua News Agency reported yesterday. The State Council also said economic growth this year is likely to come in at 7.6 percent, above the government’s 7.5 percent target.

Japan Tensions

Chongqing Changan lost 3.6 percent. Guangzhou Automobile Group Co., which has manufacturing ventures with Toyota Motor Corp. and Honda Motor Co., dropped 1.3 percent.

Automakers are bracing for a potential consumer backlash should tensions with China escalate after Prime Minister Shinzo Abe visited a shrine memorializing war-dead on Chairman Mao Zedong’s birthday. The visit creates substantial political obstacles to China-Japan ties and Japan must bear all consequences, Foreign Ministry spokesman Qin Gang said.

Measures of phone and technology stocks in the CSI 300 fell at least 2.7 percent today. GoerTek lost 2.7 percent. ZTE, China’s second-biggest phone-equipment maker, slumped 6.5 percent, the lowest close since July 9.

The technology sub-index has climbed 36 percent this year while the phone measure advanced 19 percent, among the three best-performing industry groups.

China National Software & Service Co. has surged 249 percent this year and Yangtze River Investment Industry Co. jumped 239 percent, making them the best performers in the Shanghai Composite. Shanxi Xinghuacun Fen Wine Factory Co. and Guizhou Panjiang Refined Coal Co. were the worst performers, with losses of 58 percent and 57 percent.

The statistics bureau is due to release industrial companies’ profits for November tomorrow. Net income for the companies rose 15.1 percent in October, down from 18.4 percent growth a month earlier.

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