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Stocks plunge amid global financial woes

By Zhou Yan (China Daily)
Updated: 2008-10-07 08:57

An investor appears distressed as an electronic board shows declining stock prices at a securities firm in Shanghai yesterday. Chinese share prices closed 5.23 percent down in response to persistent financial turmoil in the United States and Europe. [Agencies]

Chinese stocks plummeted yesterday amid worries about the spreading global fallout from the US bad-debt crisis as investors caught up on developments following the week-long National Day holiday.

The benchmark Shanghai Composite Index fell 5.2 percent, or 120.05 points, to 2173.74. The Shenzhen Component Index was down 4.52 percent at 7217.

The combined turnover on the two bourses shrank 25.8 percent from the previous trading day, September 26, to reach 68.9 billion yuan ($10.06 billion) yesterday.

News that China's securities regulator plans to allow margin trading on a trial basis was overshadowed by concern over the effectiveness of the $700 billion bailout plan, passed by the US Congress last week, to buy distressed mortgages and securities backed by mortgages from banks and other financial institutions.

"There are too many uncertainties in the global economy, so investors remain cautious," said Zhang Gang, a strategist at Central China Securities in Shanghai.

Across Asia, markets were in the red.

Tokyo's Nikkei 225 index fell to its lowest level in four-and-half years, sinking 4.25 percent to 10473.09.

Hong Kong's Hang Seng index slid 5 percent to 16803.76. Markets in Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 percent, it's biggest one-day drop.

In Europe, trading was suspended on Russia's leading stock exchange yesterday after shares plunged by more than 15 percent amid falling oil prices and fears over the global economy.

Germany's DAX was down 5.6 percent, while France's CAC-40 dropped 6 percent. The FTSE 100 index of leading British shares was faring slightly better, down 3.4 percent at 4705.25.

Wall Street plunged yesterday, with the Dow Jones industrials down more than 465 points, or 4.5 percent, at noon. It was trading at 9860 amid growing fears that the credit crisis is spreading around the world.

The Chinese stock market decline yesterday was led by banks, non-ferrous metals and coals.

"Bank shares were the worst hit by the external turbulence," said Jin Lin, a finance researcher at China Everbright Securities.

There was also speculation that the central bank may cut interest rates to stimulate the economy.

Four banks fell to their daily trading limits yesterday, including Huaxia Bank and Shanghai Pudong Development Bank.

Wu Feng, an analyst at TX Investment Consulting, said the recent rise of the US dollar caused prices in non-ferrous metals and coal to drop.

Global coal prices have fallen more than 25 percent since early September.

China Coal Energy, the country's second-largest coal producer by revenue, fell 9.98 percent yesterday; while the country's third largest copper producer, Yunnan Copper, dropped 9.6 percent.

In its latest attempt to pump up the market after a nearly year-long correction, the China Securities Regulatory Commission (CSRC) announced on Sunday that it would begin allowing margin trading and short-selling on a trial basis.

Initially, the plan will involve only select stocks and a limited number of brokerages, the CSRC said in a statement on its website.

Bolstered by the news, shares in the securities sector rallied yesterday. Haitong Securities, the country's largest brokerage by market value, rose 9.99 percent to close at 23.67 yuan.

Analysts said the news would lift brokerages' performance, but the impact on the mainland equity market in the near-term would be limited.