China's main stock index lost more than 2 percent yesterday, ending at a seven-month closing low as concern about monetary tightening led the index to underperform foreign bourses.
Hong Kong's Hang Seng Index and Tokyo's Nikkei 225 rallied more than 1 percent in response to foreign central banks' plan to inject funds into global credit markets.
But the benchmark Shanghai Composite Index, which opened more than 2 percent higher, ended down 2.30 percent at 4070.116 points.
Falling stocks in Shanghai overwhelmed gainers by 771 to 118, with banks and steel shares continuing to bear the brunt of heavy selling. Turnover in Shanghai A shares was 88.3 billion yuan against Tuesday's 79.2 billion yuan.
Investors used the early rise as a chance to sell stocks, partly because expectations for further monetary tightening were quite strong after Tuesday's news that February inflation jumped to a fresh 11-year high, said Wu Binghua, strategist at Debon Securities in Shanghai.
He added that the Shanghai index was likely to fall below 4000 points at some stage.
Deutsche Bank's China economist Ma Jun said he believed the government would raise one-year deposit rates by 81 basis points in the next three months, compared with an earlier expectation of 54 basis points.
Most analysts and the bond market are not nearly so hawkish, but concern about inflation nevertheless weighed heavily on stocks.
"The biggest negative for the equity market is not so much the higher level of inflation, but more importantly the huge uncertainties that are likely to ensue," Ma said in a report.
Source:China Daily/Agencies
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