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November 27, 2009

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Home » Business » Finance

Banks lead key stock index to biggest decline in 3 months

SHANGHAI'S key stock index yesterday posted its biggest daily drop in three months, led by lenders on concerns that lower capital adequacy ratio due to explosive lending will force them to unveil large financing plans.

The decline came after the gauge tumbled 3.45 percent on Tuesday amid uncertainties about China's economic recovery. The Shanghai Composite Index lost 3.62 percent, or 119.18 points, to 3,170.98, the steepest single-day decline since August 31 and its lowest close in three weeks. Turnover rose to 254.5 billion yuan (US$37.42 billion) from 218 billion yuan on Wednesday.

The index may continue to remain sluggish with weak heavyweights such as banking and property shares until the annual central economic work conference due at the end of this month, which would set the macro-economic outlook for 2010, analysts said.

"Investors are cautious before the central government's annual conference, at which the government is expected to decide whether to maintain or exit the current stimulus measures, including preferential tax policies on home and car purchase as well as the relatively loose monetary policy," said Wang Fen, a Shanghai Securities Co analyst.

Lenders led the decline yesterday as they have come under pressure recently.

"If state-owned banks were to accelerate fundraising to replenish their capital after a lending boom, that will pose pressure on the stock market's liquidity," said Wu Yonggang, a Guotai Juan'an Securities Co analyst.

The Bank of China said this week that it was studying options to raise capital, the Industrial Bank Co said it planned to raise 18 billion yuan next year in a rights offer, and China Merchants Bank Co was seeking 22 billion yuan by the end of this year.

Analysts also attributed the drop to technical correction.

"The index has risen nearly 400 points this month, which is not backed by earnings prospects or favorable macro-economic news," said Pan Lanlan, a Nanjing Securities Co analyst.


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