China stocks open down 1.5 pct, head for monthly loss

SHANGHAI Aug 31 (Reuters) - China's benchmark stock index opened down 1.5 percent on Monday, heading for its biggest monthly loss in 10 months, after surging stock valuations overwhelmed improvements in corporate earnings and new share supplies compounded a drop in liquidity as bank lending fell.

The Shanghai Composite Index .SSEC opened at 2,817.629 points, putting it on track to post a 17.4 percent loss for the month after recording seven consecutive monthly gains.

The index sank 2.9 percent on Friday amid worries about a steep drop in Chinese bank lending in August, which would trim liquidity flowing into stocks.

But analysts said slowing lending should have no major impact on the economy, partly because Chinese companies are turning a large share of the short-term discounted bill financing they received in the first half of this year into long-term investment in the second half.

State media reported on Monday that the combined net profit of China's 1,600-plus listed companies grew 36 percent in the second quarter of this year from the first quarter, a good omen for corporate earnings for all 2009.

China's Baosteel (600019.SS), the world's third-largest steelmaker, fell 1 percent to 6.83 yuan after saying its earnings for the first half of this year dropped 93 percent, but it expected they could improve in the second half of the year. [ID:nSHA368837]

PetroChina (601857.SS), the most heavily weighted stock in the index, fell 1.6 percent to 13.50 yuan, after posting its first profit in three quarters on Friday as higher fuel prices in China offset a steep slide in crude oil prices. [ID:nHKF082432]

Metallurgical Corp of China's Shanghai A-share initial public offering, which aims to raise about 16.85 billion yuan ($2.47 billion), will start book-building on Tuesady and take subscriptions next week. [ID:nSHA362276]. (Reporting by Claire Zhang and Edmund Klamann)