Friday, March 07, 2008

Banks drag down China stocks; fund-raising fears

China's stock market fell sharply on Tuesday, dragged down by shares in banks, which were hit hard by speculation that they might soon announce large fund-raising plans.

The Shanghai Composite Index <.SSEC> closed down 2.32 percent at 4,335.446 points, after touching a low of 4,321.266.

The index opened higher, continuing a rally that began late last week, and approached important technical resistance on its 250-day average, now at 4,506 points. But after hitting a high of 4,472.151, the index began pulling back.

Shareholders in Ping An Insurance <> are due to vote on Wednesday on a proposal for a massive equity issue that could raise some 120 billion yuan, making it one of the world's largest share sales. The issue could add to pressure on a market which is already struggling to absorb new supplies of shares.

Many analysts say the result of the vote remains too close to call. A report by Orient Securities estimated the proposal had a 60 percent chance of passing.

Even if it does pass, the securities regulator, which would need to approve the sale and warned last week against big equity issues that could hurt the market, may intervene to force a scaling back or delay of the plan.

But investors dumped banking stocks on Tuesday because they feared shareholder passage of Ping An's plan might encourage other large financial companies to make big equity issues.

Ping An ended down 4.29 percent at 67.10 yuan, near its intra-day low of 66.99 yuan but well off last week's low of 65.01 yuan. The stock has already dropped from over 100 yuan since mid-January, so Orient Securities and other analysts said it might have little room to fall further even if the plan passed.

But Shenzhen Development Bank <> tumbled 9.85 percent to 29.75 yuan amid rumours that it might plan a share sale. Asked about the drop, a company spokesman said, "We have noticed the stock's move, but we have disclosed all relevant information to the public."

Pudong Development Bank <>, which last week announced a plan for a large equity offer, was down 8.99 percent to 38.98 yuan.

($1 = 7.10 yuan)

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