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Index tumbles 7.73% amid panic selling

(Xinhua/chinadaily.com.cn)
Updated: 2008-06-10 15:18

Chinese shares plunged nearly eight percent on Tuesday after the three-day holiday of the Dragon Boat Festival, with investors nervous about the impacts of the reserve-requirement ratio hike announced on Saturday by the central bank.

The benchmark Shanghai Composite Index opened at 3202.11 and dove even deeper to close at 3,072.33, losing 7.73 percent. It is the biggest plunge since last June 4, when the key index plummeted 8.26 percent.

The smaller Shenzhen market lost even more as the Shenzhen Component Index fell 8.25 percent to 10,765.91 by close. Combined turnover on the two bourses totaled 89.30 billion yuan ($12.76 billion).

Losers far outnumbered gainers by 1,422 to 24, with nearly 1,000 stocks in both markets fell to the day's limit of ten percent.

The People's Bank of China, the country's central bank, on Saturday ordered lenders to set aside more money as reserve, the fifth such move this year.

The reserve-requirement ratio would be raised by 0.5 percentage point on June 15, and another 0.5 percentage point on June 25, which will bring the ratio to a record high of 17.5 percent.

"The rise, a further materialization of the tight monetary policy, is aimed at strengthening liquidity management in the banking system," said the central bank.

Li Feng, a Galaxy Securities senior analyst, said the investor's sentiment would be hit hard because of the reserve requirement ratio increase and the US shares plunge on Friday.

Wall Street plummeted Friday on higher-than-expected unemployment data and rocketing oil prices with the Dow Jones Industrial Average dropping more than 400 points.

"Shares would continue going through ups and downs in the short term and the fluctuation range would further enlarge," said Li, adding that share prices had fallen into the undervalued range and the further room for downward trend was limited.