China stocks tumble 4.1 percent to new 11-month low

By Samuel Shen

SHANGHAI (Reuters) - China's main stock index tumbled 4.13 percent to a new 11-month closing low on Tuesday after the central bank repeated its commitment to a "tight" monetary policy.

The central bank said late on Monday that policy would stay tight to fight inflation. The bond market does not believe this, and yields fell on Tuesday as traders welcomed the central bank's references to flexibility as suggesting policy might actually be loosened later this year to sustain economic growth.

But Monday's statement was seen as negative for the stock market by indicating authorities were not taking pains to avoid damaging investor sentiment, and were therefore unlikely to adopt strong measures -- such as a cut in the stock trading tax -- to halt the slide in share prices.

"The government obviously has no intention of rescuing the market," said Wu Binghua, strategist at Debon Securities. "Investors have lost all confidence. If it's not a bear market, I don't know what it is."

The Shanghai Composite Index .SSEC, which plunged 34 percent in the first quarter of this year, its biggest quarterly loss since 1992, ended at 3,329.162 points after hitting an intra-day low of 3,308.902.

Losing Shanghai shares overwhelmed gainers by 876 to 23, while turnover in Shanghai A shares was thin at 72.8 billion yuan ($10.4 billion), though slightly up from Monday's 66.7 billion.

The index is 46 percent below last October's record high, hurt by concern about its ability to absorb large new supplies of shares and by the prospect of slowing corporate profit growth.

"Money has been flowing out of the market in panic selling, while trend investors stay out of the market," said Chen Ge, who helps manage 11.7 billion yuan of assets at Fullgoal Fund Management. "It's too early to conclude that the index is near its bottom."

Technically, the index's close below support on its June 2007 low of 3,404 points was bearish. Many analysts see no further major support before the 3,000-point area.

Corporate earnings to be announced this month may be worse than expected, which will weigh on the market, major brokerage Shenyin Wanguo Securities said in a note to clients after the market closed. The index is expected to fluctuate between 3,150 and 3,700 points in April, it said.

China International Capital Corp also forecast in a report on Tuesday that profits at China's industrial companies would be squeezed by slowing demand and rising raw material costs.

The biggest stock, PetroChina (601857.SS), sank 2.26 percent to 16.83 yuan on Tuesday, off a low of 16.73 yuan. It managed to avoid dropping below its price of 16.70 yuan in the company's Shanghai initial public offer last October.

Shares in three other major companies dropped below their IPO prices last week, and any such break by PetroChina would be seen as extremely negative for the market, indicating that institutional investors which bought in its IPO were so eager to get out of the stock that they were willing to take losses.

Some traders believe a few large institutions might have been deliberately supporting PetroChina's shares above the IPO price on Tuesday in an effort to prevent the market's panic from worsening further.

Steel makers and property developers led Monday's decline. Vanke (000002.SZ), China's biggest listed developer, fell 4.30 percent to 24.50 yuan. Baoshan Iron & Steel (600019.SS), China's biggest steelmaker, slumped 8.70 percent to 11.33 yuan.