China stocks slide 5 pct as retail investors flee

SHANGHAI May 17 (Reuters) - China's key stock index tumbled 5.1 percent on Monday to its lowest close in a year, led by property stocks, as retail investors fled the market after a rout sparked largely by the government's stronger-than-expected steps to clamp down on property prices.

The Shanghai Composite Index .SSEC closed at 2,559.9 points, its lowest close since May 4, 2009, and posted its biggest one-day percentage drop in more than eight months. The index has dropped nearly 20 percent in only three weeks.

"If you look at the thin volume of the market, you know that much of the fall in the index is not real," said Wu Xiong, senior trader at Rosefinch Investment, a private equity fund.

"It's a psychological problem that has long plagued China's stock market: Retail investors stay in the market only for quick profits."

Wu and several other traders said the index should have the potential to rebound at any time as market fundamentals, including China's economy and corporate earnings, had not changed much over the past several weeks despite the market slump.

Property stocks bore the blunt of the market's downtrend again on Monday, with Gemdale Corp (600383.SS) falling 8.4 percent while sector heavyweight China Vanke (000002.SZ) dropped 5.3 percent. ($1 = 6.83 yuan) (Reporting by Lu Jianxin and Edmund Klamann)