July 1, 2013 / 4:11 AM / 5 years ago

China cash rates extend decline towards normality, stocks fall

* Cash rate falls to lowest since before peak of squeeze
    * Stocks fall as focus shifts back to economy worries
    * Cash rate seen continuing gradual decline, stocks

    By Lu Jianxin and Kazunori Takada
    SHANGHAI, July 1 (Reuters) - China's key short-term lending
rate on Monday fell to its lowest level since before the peak of
the last month's cash crunch, while stocks slipped back as
traders shifted their focus back to the economy which showed
further signs of weakness.
    The weighted average for the benchmark seven-day repo rate
 fell 71 basis points to 5.45 percent around
midday, its lowest since June 20, though still above its usual
range of 3-4 percent. The overnight rate fell by
49 basis points to 4.47 percent.  
    "Market liquidity conditions have improved greatly as
seasonal demand for the end of the quarter is now over," said a
money trader at a Chinese bank in Shanghai. But she added that
rates would remain relatively high over the next two weeks due
to cash demand for dividend payments by banks. 
    The weighted-average seven-day rate hit a record 11.62
percent on June 20, though some trades were seen as high as 28
percent, as the central bank allowed conditions to tighten and
panic grew in the market about a potential credit crunch,
sending shares lower.
    But the stock and cash markets calmed down late last week
after the People's Bank of China pledged to provide emergency
liquidity to any bank short of cash, and revealed that it had
already done so for some institutions.
    With money market rates expected to gradually ease towards 4
percent by mid-July, stock investors were focusing their
attention back to the economy.
    "The market will see a sustained consolidation period in the
near term," said Chen Huiqin, senior stock analyst at Huitai
Securities in Nanjing.
    "This is because regulators appears to be determined not to
usher in new economic stimulative measures. Instead, they have
laid emphasis on economic structural reforms. Without major
government stimulative measures, the market will not see a bull
    Reinforcing worries about tepid growth in the second
quarter, China's official purchasing managers' index (PMI)
slipped to 50.1 in June from 50.8 in May, a survey showed on
    The CSI300 index of the largest mainland counters
ended the morning session down 1.1 percent as investors cashed
in on rally in financial shares on Friday. The sub-index of
financial shares was down 1.5 percent after rising 3.5
percent on Friday.
    Trading was volatile with the index briefly drifting into
positive territory.
    "Overall, the large-cap index should have limited room to
plunge again as the price-to-earnings (PE) ratio of these
heavyweights is now very low," said Zhang Qi, analyst at Haitong
Securities in Shanghai.
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