April 19, 2010 / 10:00 AM / 10 years ago

China shares tumble on property curbs, HK hits 3-wk low

* Shanghai slides 4.8 pct, biggest daily drop in 8 months

* New Shanghai index futures spark heavy short selling

* HK stocks hit 3-wk low but fall less than A-shares

* Property, finance shares tumble on fresh Beijing curbs (Updates to close)

By Donny Kwok and Farah Master

HONG KONG/SHANGHAI, April 19 (Reuters) - Chinese shares tumbled nearly 5 percent on Monday after Beijing took further steps to rein in the surging real estate market, slamming property stocks and dragging down the Hong Kong market.

The Shanghai Composite .SSEC shed 4.8 percent for its biggest-one-day drop in eight months after China ordered local governments to take steps to control speculative buying in real estate, with the property sector index sliding 6.8 percent.

The State Council told banks they would be expected to raise mortgage rates and down payment requirements in the latest steps to cool the speculative fervour gripping the property market. [ID:nTOE63G016]

“The market is reacting to news of the clampdown in property,” said Xu Yinhui, analyst at Guotai Junan Securities.

Real estate companies, prominent among the market's large cap stocks, fuelled a 5.4 percent drop in the CSI 300 index .CSI300 that covers the 300 largest companies by daily turnover and market capitalisation on the Shanghai and Shenzhen bourses.

Traders said heavy short-selling in China’s new stock index futures on their second day of trading played a role in the sharp market drop. China launched its first stock index futures based on the CSI 300 <0#CIF:> on Friday, a milestone in the development of the country’s relatively young financial markets.

The lead May contract CIFc1 slid 6.8 percent on volumes more than twice the amount during Friday’s first day of trade.

“Heavy short-selling in futures has caused a bearish atmosphere in the spot market,” said analyst Zhang Qi at Haitong Securities.

But traders said they did not expect a sustained fall in the CSI 300 despite Monday’s sudden drop, with investors still taking heart from last week’s data showing China’s recovery in robust shape.

Shanghai A-share turnover picked up to 156 billion yuan ($22.9 billion), up from Friday and about 30 percent higher than this year’s daily average. Losing A-share stocks outnumbered gainers by 861 to 33.

Banking stocks were also hit by news of fraud charges against Goldman Sachs by the U.S. Securities and Exchange Commission (SEC). Industrial & Commercial Bank of China (601398.SS), the most actively traded stock on the Shanghai Stock Exchange, losing 4.9 percent.

All 14 banks listed on the Shanghai and Shenzhen stock exchanges fell on investor concern that the government’s clampdown on property would increase bad loans, as banks have lent a large amount of money to property companies and homeowners.

SENTIMENT TURNS SOUR

Hong Kong shares extended losses late in the day as China stocks fell further. Developer China Resources Land (1109.HK) lost 5.5 percent to HK$14.42, its lowest close in more than two months, and China Overseas Land (0688.HK) fell 3.7 percent to its lowest close in nearly two months.

HSBC Holdings (0005.HK) fell 3.19 percent to its lowest close in more than a week, while China Construction Bank (0939.HK) was down 2.28 percent to its lowest close in three weeks.

The benchmark Hang Seng Index .HSI shed 2.1 percent to 21,405 -- a three-week low and the biggest one-day drop in two months.

“Sentiment turned sour as China’s market fell further,” said Linus Yip, strategist at First Shanghai Securities. “Investors’ appetite for risk reduced and retreated from aggressive buying in a policy sensitive market.”

Yip expects further downside as buyers remain on the sidelines and advises investors to raise their cash positions as the market outlook turns murky.

Shares of Chinese developer R&F Properties (2777.HK) led the slide on the China Enterprises Index .HSCE of top locally listed mainland Chinese stocks, with the index losing 2.42 percent to 12,253.78, its lowest in three weeks and the biggest single-day decline in percentage terms in two months.

“The next move of the market will be dictated by China stocks while investors will stay alert to any news from the U.S.,” said Conita Hung, head of equity research at Delta Asia Financial.

Analysts expect the market may find support in the medium run on expectations of capital inflows to the local and China markets as the Chinese yuan appreciates.

China could see increased foreign exchange inflows this year as expectations for yuan appreciation are mounting, the State Administration of Foreign Exchange said on Monday. [ID:nBJC002557]

Swire Pacific (0019.HK) fell 2.2 percent to about a month low at HK$91.95 after the conglomerate said it had received approval for a $3 billion initial public offering on Hong Kong’s stock exchange of its Swire Properties unit. The unit is expected to report an underlying net profit of at least HK$4.2 billion ($550 million) for this year. [ID:nTOE63I01Y] (US$1=HK$7.76) (Editing by Jacqueline Wong)

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