20110107 1109 Breaking News.

China Stocks Drop on Tightening Concern, Commodity Slump, Trim 2011 Gain (Source: Bloomberg)

China’s stocks fell, narrowing the benchmark index’s gain for the first week of the year, after the government said it will step up measures to tighten liquidity and raw-material prices slumped.
Jiangxi Copper Co. and PetroChina Co., the nation’s producers of copper and oil, led declines for commodity stocks as a stronger dollar reduced the attractiveness of metals as an alternative investment. Ping An, China’s second-biggest insurer, rebounded from the biggest drop in two months after saying reports of a re-financing exercise are “ungrounded.”
“Inflation pressure will force the government to take tighter monetary policies this year,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “As a rule, subsiding liquidity is a bad thing for equities.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped for a third day, losing 6.8, or 0.2 percent, to 2,817.36 at 9:34 a.m. The CSI 300 Index fell 0.2 percent to 3,153.78.
The Shanghai gauge has gained 0.3 percent this week after dropping 14 percent in 2010, the worst performer among the 14 biggest world benchmark indexes. The government ordered banks to set aside more reserves six times in 2010 and boosted rates twice to tame inflation and curb asset bubbles after record gains in lending and property prices.
Jiangxi Copper fell 2.4 percent to 43.93 yuan. PetroChina lost 0.4 percent to 11.10 yuan.
Commodities slumped yesterday after the dollar strengthened on prospects U.S. unemployment rates probably dropped last month, reducing the appeal of metals as alternative investment.

Steel Outlook
Crude oil for February delivery declined 2.1 percent to $88.38 a barrel in New York yesterday. The London Metal Exchange Index of six metals including copper and aluminum dropped 0.2 percent yesterday, falling for a second day. Gold futures for February delivery declined for the third straight day yesterday.
Goldman Sachs Group Inc. said it’s negative on Chinese steel stocks on a “12-month horizon” because of rising production, weakening demand and the potential for more policy tightening measures.
“Potential tightening measures are likely to cause further near-term pressure on Chinese commodities,” Goldman analysts led by Julian Zhu wrote in a report. “Furthermore, they could also force steel traders (who rely heavily on bank financing) to liquidate their inventories, driving spot/futures steel prices lower, and thus hurting steel stocks’ performances.”
Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, slipped 0.3 percent to 6.44 yuan. Hebei Iron & Steel Co., the listed unit of China’s biggest steelmaker, lost 0.5 percent to 3.76 yuan.

‘Hot Money’
China’s currency regulator said yesterday it will continue to crack down on “hot money” inflows and step up monitoring of cross-border capital flows this year.
Separately, the central bank will manage liquidity in the banking system, guide steady growth of loans and enhance currency flexibility, the People’s Bank of China said in a statement yesterday.
Ping An has no plan to conduct any re-financing exercise in the A-share market, said the company in a statement last night.
Ping An Insurance rebounded 0.7 percent to 52.97 yuan after slumping 7.6 percent over the past two days. Citic Securities Co. said yesterday in a note the company may need to raise up to 40 billion yuan ($6 billion). Reports on the company’s re-financing exercise are “ungrounded,” Ping An said in the statement. The operation condition of the company is “normal with a stable financial status,” it said.
--Zhang Shidong. Editors: Allen Wan, Richard Frost