Stocks tumble nearly 3%, despite rosy economy

Stock investors concerned with possible more interest rate hikes by the central bank, sold off their holdings on Thursday that caused a hemorrhaging in Shanghai and Shenzhen markets.

The composite Shanghai stock index dived 80.45 points, or 2.92 percent, to close at 2677.65 points, the lowest in about six months. The Shenzhen index lost almost 500 points, or 4.14 percent. Trading was comparatively heavier Thursday, which analysts say does not foretell an imminent rally.

The unexpected rise in China's GDP in the last quarter, growing 9.8 percent, has proved not to be a "welcome" piece of news for Chinese stock investors which actually thickened their worry that Beijing could resort to harsher monetary tightening to rein in inflation.

The consensus prediction prior to Thursday's announcement of 2010 fourth quarter economic numbers by the National Bureau of Statistics was that GDP dipped below third quarter's 9.6 percent rise – most estimates putting it at 9.2 percent – as a result of central bank's two interest rate hikes in October and December.

The resilience of China's economy, faring better with an impressive 9.8 percent growth last quarter, caught most analysts by surprise. It may embolden Beijing regulators to elevate tightening and raise rates again, and soon. The central bank could also hike commercial banks' reserve requirement ratios and lock up more liquidity from the market.

The National Bureau of Statistics also announced China's 2010 annual GDP expanded by 10.3 percent to hit $6.1 trillion. Inflation in December rose 4.6 percent year-on-year, a slight moderation from November's 5.1 percent.

By Li Hong, People's Daily Online