Blue-chips lead China stocks lower as rally unwinds

SHANGHAI, July 4 (Reuters) - China stocks fell on Tuesday, led down by the blue-chip index that some analysts say has been due for a correction after rallying strongly on inclusion of Chinese shares in a key MSCI index.

The blue-chip CSI300 index fell for the third session, dropping 0.8 percent to 3,619.98 points.

The Shanghai Composite Index lost 0.4 percent to 3,182.80 points.

“The recent correction is technical as blue-chips had far outperformed the broader market this year, but we see little chances for a major downturn in industry-leading big-caps as they are not overvalued,” said Xu Wei, an analyst with Hongxin Securities.

The robust trend in China’s “nifty 50”, the 50 most representative blue-chips in Shanghai, is broadening to the so-called “MSCI222”, and investors could explore opportunities in blue-chips with solid fundamentals as rotation into them is clear, Xu added.

U.S. index provider MSCI last month decided to add 222 China-listed stocks to its Emerging Markets Index, tracked by around $1.6 trillion.

The inclusion is widely expected to benefit long-term development of China’s stock market.

Worries over tight liquidity conditions have eased after the mid-year macro-prudential assessment (MPA), although sellers have been pressuring Chinese markets over the past week or so on lingering fears of a cash crunch and slowing economic growth.

On Tuesday, sectors contracted across the board, led by consumer and real estate stocks. (Reporting by Luoyan Liu and John Ruwitch; Editing by Richard Borsuk)