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China shares fall on jitters over policy moves

March 12, 2010

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SHANGHAI—Chinese shares fell to a nearly three-week low on Friday, as investors sold property shares on expectations that higher-than-expected inflation might lead to a hike in interest rates or other cooling measures.

Shrugging off overnight gains on Wall Street, the benchmark Shanghai Composite Index fell 37.87 points, or 1.2 percent, to close at 3,013.41. The Shenzhen Composite Index for China's smaller second exchange lost 1.4 percent to 1,147.44.

China reported Thursday that consumer prices rose 2.7 percent in February over a year earlier, up from January's 1.5 percent increase mainly due to higher food costs. The surge in inflation is forcing China's leaders to balance the risks of further increases against the costs of moving quicker to curb stimulus measures that have helped fend off recession.

"Overheated industries, such as the real estate sector and some heavy industries, will be cooled as the government adjusts its macroeconomic policies, so those shares dropped heavily today," said Peng Yunliang, an analyst at Shanghai Securities in Shanghai.

Still the reaction to stronger than anticipated data for inflation, exports and lending was relatively calm, he noted.

"Many investors are more calm and cautious, so the market is in a relatively rational mood," Peng said.

China Vanke, the country's biggest property developer, fell 1.5 percent to 9.36 yuan while Poly Real Estate slipped 1.6 percent to 19.45 yuan.

Higher crude oil prices also weighed on sentiment.

China Petroleum & Chemical Corp., which imports a large share of the oil it refines, dropped 1.7 percent to 11.30 yuan and Petrochina, the Shanghai benchmark's heaviest-weighted share, lost 0.9 percent to 12.82 yuan.

Airlines also weakened on expectations of higher fuel costs, with Air China falling 4.1 percent to 11.16 yuan and China Eastern Airlines shedding 2.9 percent to 6.64 yuan.

(This version CORRECTS that closing level is lowest in nearly 3 weeks.)