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China shares dive again over liquidity concerns


16:00, June 24, 2013

BEIJING, June 24 (Xinhua) -- China's key stock index recorded the biggest daily loss in nearly four years on Monday over worries about the liquidity crunch in the financial system and subdued strength in the world's second largest economy.

The benchmark Shanghai Composite Index tumbled 5.3 percent to end at 1,963.24, the lowest point in nearly seven months, while the Shenzhen Component Index plummeted 6.73 percent to 7,588.52.

Medium- and small-sized lenders were among the worst hit in Monday's trading, with Industrial Bank Co. shedding the daily limit of 10 percent to end the day at 13.89 yuan (2.25 U.S. dollars) per share.

Ping An Bank also went down 10 percent to 10.15 yuan, while China Minsheng Bank lost 9.95 percent to 8.51 yuan.

The plunge came as China's central bank on Monday urged lenders to control risks from credit expansion after the country's short-term interbank rates rocketed to unusually high levels during the past two weeks.

In a statement posted on its website, the People's Bank of China, the central bank, said the country's liquidity remains at a reasonable level, signalling no intention to help ease the cash crunch that investors fear would threaten the country's prolonged recovery.

"We believe this is another sign that the central bank is not willing to loosen policies or inject liquidity to bring down interest rates... and suggests that the central bank's policy stance remains tight," noted Zhang Zhiwei, chief China economist at Nomura Securities.

The Shanghai Interbank Offered Rate (SHIBOR) overnight rate, a basic gauge of interbank borrowing costs, retreated to 6.489 percent Monday from last Thursday's record high of 13.44 percent. The rate of the seven-day SHIBOR, another gauge of interbank interest, decreased to 7.31 percent, both still within a relatively high range.

Given the central bank's tight stance, Zhang forecast "a 30-percent probability" that China's GDP growth drops below 7 percent in the second half of the year.

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