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Shanghai Composite Drops Before Economic Reports as Banks Slide

Aug. 12 (Bloomberg) -- China’s benchmark stock index fell from an eight-month high before the release of economic data including new yuan loans and industrial production.

Huaxia Bank Co. and Industrial Bank Co. dropped at least 1 percent to lead declines among lenders. Gree Electric Appliances Inc., China’s largest maker of home air-conditioners, lost 1.6 percent. Yonghui Superstores Co. jumped 10 percent after it said Dairy Farm International Holdings Ltd. is buying a 20 percent stake in the supermarket operator.

The Shanghai Composite Index slipped 0.1 percent to 2,221.60 at the close. It climbed 1.4 percent yesterday to the highest level since Dec. 10 after data showed subdued inflation. The gauge has rebounded 12 percent from this year’s low, sending its 14-day relative strength index to 71.4 yesterday. Readings above 70 indicate a price may be poised to fall.

“The problem with the market is that it rose too fast and it needs a break and some consolidation here,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The upcoming economic data are expected to show the economy is recovering.”

The CSI 300 Index fell 0.4 percent to 2,357.05. The Hang Seng China Enterprises Index dropped 0.1 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 1.3 percent yesterday.

The Shanghai Composite has rebounded as monetary easing, accelerated government spending and gains in manufacturing spur speculation the nation will meet its 7.5 percent economic expansion target. The index is valued at 8.1 times 12-month projected earnings, compared with the five-year low of 7.3 in March, according to data compiled by Bloomberg.

New Loans

A measure of financial stocks slid 0.8 percent today, the most among the CSI 300’s 10 industry groups, trimming this year’s gain to 3.7 percent.

Huaxia Bank dropped 1.4 percent while Industrial Bank, part-owned by a unit of HSBC Holdings Plc, retreated 1 percent. China Vanke Co. dragged down developers, falling 0.5 percent. Gree Electric paced losses for consumer-discretionary companies, sliding 1.6 percent.

New local-currency loans probably reached 780 billion yuan ($126.7 billion) last month, compared with 1.08 trillion yuan in the previous month, according to the median estimate of 46 economists surveyed by Bloomberg. M2 money supply likely rose 14.4 percent in July, compared with June’s 14.7 percent growth, estimates showed. The data may come out as early as today.

China will release other July data on industrial production, fixed-asset investment and retail sales tomorrow. Factory output probably rose 9.2 percent from a year earlier while retail sales growth accelerated to 12.5 percent from 12.4 percent a month earlier, according to median estimates.

Exchange Link

Yonghui Superstores surged by the daily limit. Dairy Farm International, an operator of supermarkets and retail stores, is paying 5.69 billion yuan ($924 million) for a 20 percent stake, according to an exchange statement.

The days of paying different prices for the same stock in Hong Kong and Shanghai are numbered, according to Morgan Stanley.

Valuation gaps between dual-listed shares will disappear as an exchange link between the two cities leads to the creation of a “one-China” market, Jonathan Garner, its head of Asia and emerging-market strategy, said in a Bloomberg Television interview in Hong Kong today. Yuan-denominated A shares on the mainland are valued at a discount of about 7 percent versus Hong Kong counterparts, known as H shares, according to the Hang Seng China AH Premium Index.

“We’re looking for A-H stock price convergence,” Garner said. Over time, the gaps “will effectively come down to zero,” he said.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Allen Wan

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