China central bank injects $42b

BEIJING - The Chinese central bank pumped 255 billion yuan (42 billion US dollars) into the money market on Tuesday, easing concerns over financial risks in the world's second-largest economy.

The liquidity injection came after the Shanghai Composite Index fell below the much-watched 2,000 points level on Monday and to its lowest in six months. A credit crunch in June pounded market sentiment and plunged the benchmark index downward by more than 5 percent in one trading day.

The reversed repo purchase, which had stopped for four weeks, brought down rates for the seven-day repo and the Shanghai Interbank Offered Rate that surged on Monday. The stock market rebounded 0.86 percent on Tuesday.

"The recent news of a potential trust default and the fact that the Shanghai stock index dropped below 2,000 suggest market confidence is weak, which may also have put pressure on the government to take action and restore confidence," said Zhang Zhiwei, chief China economist at Nomura.

The Industrial & Commercial Bank of China, China's largest bank, and China Credit Trust, a shadow lender, have been embroiled in a possible wealth management product default, according to media reports.

It is feared that the potential three-billion-yuan default could trigger a ripple effect in China's shadow banking, which has rapidly increased its lending to real estate developers, industries beset by overcapacity and local government financial vehicles during the last two years.