China shares slump on liquidity drain, real estate concerns

SHANGHAI Wed Feb 20, 2013 10:34pm EST

SHANGHAI Feb 21 (Reuters) - China's CSI300 index, which tracks China's largest listed firms, slid more than 3 percent on Thursday on concerns that recent central bank behavior had signalled the beginning of a tightening cycle.

Analysts said that investors were worried the central bank was draining funds more aggressively than expected. The People's Bank of China let a net 910 billion yuan ($145.89 billion) drain from the interbank market this week.

"The central bank drained over 800 billion yuan from the money market, which sparked worries that liquidity conditions might be tightening," said Chen Shaodan, analyst at New Times Securities.

In addition, the central bank this week returned to using longer-term forward repos to drain funds, instead of reverse repos which inject funds, for the first time since June.

A Reuters report citing sources that PBOC chief Zhou Xiaochuan would be reappointed, despite reaching his mandatory retirement age of 65, also spooked some investors, who believe it signals that Beijing will continue to crack down on inflation and tighten liquidity, analysts said.

Real estate markets started off the plunge. China's cabinet on Wednesday restated its intention to extend a pilot property tax programme to more cities and urged local authorities again to put price control targets on new homes, in the latest effort to calm frothy real estate markets.

However, real estate stocks recovered in late morning. Finance and insurance stocks were the leading drag in the Shanghai Composite Index at midday.

($1 = 6.2376 Chinese yuan) (Reporting by Pete Sweeney and Chen Yixin; Editing by Jacqueline Wong)

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