| Stocks dive on fears of interest rate hike |
SHANGHAI, June 23 -- Shanghai's benchmark stock index plunged more than three percent yesterday - the biggest single-session drop since June 4 - as the threat of an interest rate hike and a possible flood of shares tempered investor sentiment.
Analysts warned that the market will probably continue to decline in the coming week, after falling one percent overall this week.
The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, fell 3.29 percent to close the week at 4,091.45.
Turnover edged up to 167.52 billion yuan (US$21.97 billion) from 161.78 billion yuan the day before.
Blue chips including Sinopec and China Unicom dropped yesterday.
"It was a normal Friday. No one knows whether the government will announce an interest rate hike (during the weekend)," said Dai Ming, an analyst at Kingsun Investment Management Co, who said the index could dip below the 3,800 mark next week.
China has increased interest rates twice this year to cool its sizzling economy. Major monetary policy moves are often announced over the weekend, when the markets are closed.
But even with the rate increases, inflation accelerated to a two-year high of 3.4 percent last month, and fixed-asset investment picked up steam.
"In view of the risk of an overheating economy and inflationary pressures, and with the domestic A-share market testing new highs, we now see a need to hike both the deposit and lending rates," Wang Qing, a Morgan Stanley Hong Kong-based analyst, said in a note yesterday.
In addition to possible central bank action, investors also fear an avalanche of new shares that would soak up market liquidity.
A large volume of shares that have been locked up as part of prior purchase agreements may be hitting the market in the coming week, according to Chen Jinran, a Huatai Securities analyst.
Sany Corp's 96 million locked-up shares can be traded starting on Monday, and Citic Securities' 500 million locked shares, valued at about 26 billion yuan, could be traded as early as Wednesday.
Analysts are also worried about long-term liquidity issues as several large-scale fund-raising plans were announced recently.
Among yesterday's losers, China Petroleum & Chemical Corp (Sinopec) shares dropped four percent to close at 14.29 yuan. China Unicom fell nearly four percent to 5.96 yuan.
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