China’s Stocks Fall as North Korea Concern Outweighs PMI Report

China’s stocks fell, with the Shanghai Composite Index erasing a 1.8 percent rally, as North Korea’s threat to test nuclear weapons overshadowed a report showing the nation’s manufacturing is accelerating.

Gauges tracking commodities producers sank more than 2 percent. China Shenhua Energy Co., the nation’s largest cpal producer, retreated to its lowest level in a month, while Jiangxi Copper Co., the largest producer, slumped 2.2 percent. Liquor maker Kweichow Moutai Co. lost 1.5 percent after the Oriental Morning Post said product prices have dropped.

“There’s some psychological effect on investors after hearing about North Korea’s threat,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Stocks have rallied considerably recently and naturally face some correction risk.”

The benchmark stock index lost 0.8 percent to 2,302.60 at the close, after earlier taking its gain from a three-year low on Dec. 3 to 20 percent. The gauge is valued at 12.7 times reported earnings, near the highest level since May, data compiled by Bloomberg show.

The CSI 300 Index slipped 1 percent to 2,582.75. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong dropped 0.6 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.5 percent in New York yesterday.

Trading volumes in the Shanghai Composite were 32 percent higher than the 30-day average today. Its 30-day volatility was at 20.4, near the 11-month high of 21.6 on Jan. 17.

North Korea threatened to conduct a nuclear weapons test “targeted” at the U.S. after the nation pushed through United Nations sanctions against the totalitarian state for a rocket launch last month.

PMI Data

Shenhua lost 1.4 percent to 23.79 yuan. Jiangxi Copper dropped 2.2 percent to 23.78 yuan in a fourth day of declines.

The preliminary reading of a Purchasing Managers’ Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December and the 51.7 median estimate of 17 analysts surveyed by Bloomberg News.

The data suggest that economic growth at the start of 2013 will equal or exceed its 7.9 percent clip in the fourth quarter, reducing the likelihood that the nation’s new leadership headed by Xi Jinping will roll out additional measures to support expansion.

China’s economic risks have shifted back to growing too quickly as new regional-government officials try to boost development, a former central bank adviser said.

Moutai Declines

“The new problem is how to prevent overheating,” which would stoke inflation and asset bubbles while pushing the government to enact controls, Fan Gang, a People’s Bank of China academic adviser from 2006 to 2010, said yesterday in an interview in Davos, Switzerland, where he is attending the World Economic Forum.

A measure of consumer-staples stocks in the CSI 300 slid 1.4 percent.

Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, slipped 1.5 percent to 195.96 yuan, the lowest close since Dec. 6. The price of Moutai’s “feitian” 53 percent alcoholic product dropped about 20 percent to between 1,100 yuan and 1,200 yuan, the Oriental Morning Post reported, citing an unidentified retailer.

Wuliangye Yibin Co., the second largest, fell 1.5 percent to 25.90 yuan, capping a ninth day of losses. Sichuan Swellfun Co., the Chinese liquor maker that’s a partner of Diageo Plc, lost 3.1 percent to 17.77 yuan.

The International Monetary Fund cut its global growth predictions yesterday while maintaining its forecast for China, seen growing 8.2 percent this year and 8.5 percent in 2014. The world economy will expand 3.5 percent this year, less than the 3.6 percent forecast in October, the Washington-based IMF said in an update of its World Economic Outlook report.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., dropped 0.5 percent to $41.53 yesterday, after rising the previous three days.

Before it's here, it's on the Bloomberg Terminal.