China shares suffer biggest weekly fall since early January

BEIJING, April 25 Fri Apr 25, 2014 3:18am EDT

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BEIJING, April 25 (Reuters) - China shares dropped 1 percent on Friday and suffered their worst week since early January, as concerns about market liquidity hurt investor sentiment after Guanghui Energy became the first mainland firm to announce plans to issue preferred shares.

The Shanghai Composite Index ended down 1 percent at 2,036.52 points. The CSI300 index of the leading Shanghai and Shenzhen A-share listings also dropped 1 percent.

On the week, the SSEC shed 2.9 percent, its biggest weekly fall since the week ended Jan. 10. It is down 8.2 percent so far this year.

Shares in Guanghui Energy Co Ltd rose 4.6 percent on Friday after the company announced its preferred share issuance plan.

Regulators have given companies the green light to issue preferred shares as part of the reforms planned for China's capital markets, but investor reaction to the scheme has been mixed.

Some welcome the scheme because preferred share issues would minimise the dilution of existing shareholders compared with common equity issuance.

But others worry that a flood of new preferred share issues could siphon demand from existing shares and pressure stock prices.

Worries are already running high that a upcoming rush of initial public offerings may lead to funds being diverted from existing shares into new stocks. (Reporting By Natalie Thomas; Editing by Chris Gallagher)

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