SHANGHAI: The stock market plunged 4.51 percent yesterday after the government announced a 6.5 percent jump in the consumer price index (CPI) for August.
The Shanghai Composite Index rose 0.7 percent in the morning. But the CPI announcement at 10 am triggered a sale stampede, amid heightened anticipation of further credit-tightening measures. The main index continued falling in the afternoon to close 241.32 points lower at 5113.97 - the biggest one-day drop in two months.
Turnover on the Shanghai bourse amounted to 170 billion yuan yesterday, with 799 of 903 stocks closing lower.
The Shenzhen Composite Index also slid 5.3 percent to close at 1400.58, and the foreign currency-denominated B-share index fell 3.4 percent to close at 325.84.
Analysts said institutional investors began unloading shareholdings after the CPI figure was released, on the back of several recent measures to mop up excess liquidity in the market.
They include the finance ministry announcing on Monday it will sell 200 billion yuan worth of special treasury bonds directly to the money market; the banks' reserve ratio being raised by 0.5 of a percentage point; and the issue of 150 billion yuan in treasury bonds last week.
"The higher-than-expected CPI figure has sparked investor fears of another interest rate rise soon," said Zhu Haibin, an analyst at Essence Securities.
"The CPI number was above our expectation, and we believe it almost guarantees another rate move from the People's Bank of China," said Stephen Green, an economist at Standard Chartered Bank (China) Ltd.
"Profit-taking from mutual funds led to a widespread large-cap stocks slip, which pulled the index down quickly," said Qiu Yanying, an analyst at TX Investment Consulting Co Ltd.
Source: China Daily
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