2010-12-23 11:24

SHANGHAI - China's stocks fell, led by producers of consumer staples and banks, after the government raised fuel prices and concern grew over lenders' profitability as the government tightens monetary policy.

Kweichow Moutai Co sank to a one-month low amid speculation energy costs for companies will rise, damping earnings growth, after China increased the price of gasoline and diesel for the third time this year.

Agricultural Bank of China Ltd lost 0.8 percent after Barclays Capital said the government's higher requirements on loans to local governments will cut lenders' capital adequacy ratios and profits.

"Higher oil prices may spur faster inflation, adding to investor concerns about future policy tightening," said Zhang Kun, a strategist at Guotai Junan Securities Co in Shanghai.

The Shanghai Composite Index retreated 26.22, or 0.9 percent, to 2877.90 at the 3 pm close, the fifth decline in six days. The gauge climbed 1.8 percent Tuesday as military tensions on the Korean Peninsula eased. The CSI 300 Index fell 1.1 percent to 3215.45.

A gauge tracking consumer staples fell 1.3 percent, a fourth day of declines and the second-biggest loss among the CSI 300's 10 industry groups.

Kweichow Moutai, China's biggest liquor maker by market value, slumped 1.6 percent to 190.95 yuan ($28.72), set for the lowest close since Nov 23. Tsingtao Brewery Co, the second-biggest brewery by volume, dropped 2 percent to 35.79 yuan. Shenzhen Agricultural Products Co slipped 3.6 percent to 18.46 yuan.

Gasoline will rise by as much as 4 percent to 310 yuan a metric ton and diesel by 300 yuan a ton, the National Development and Reform Commission said. Crude in New York has gained 9 percent since China last increased prices on Oct 26.

"This is a long-delayed move as the government is concerned about inflation while refiners are suffering losses after crude costs soared," said Hei Wei, an oil analyst with BOCOM International Holdings Co in Beijing. "We think the 4 percent increase is far from enough to offset crude gains."

China's two largest refiners reversed earlier gains. China Petroleum and Chemical Corp fell 0.4 percent to 8.23 yuan after advancing as much as 2.4 percent. PetroChina Co erased an increase of 2.2 percent to trade 0.7 percent lower at 11.44 yuan.

Inflation in China accelerated to 5.1 percent last month from a year earlier, the biggest jump in 28 months. Chinese consumers are more concerned about rising prices than at any time in the past decade, the People's Bank of China said on Dec 15 in its quarterly survey of 20,000 households.

The stock measure tracking consumer staples producers has rallied 17 percent this year as food prices surged and investors sought companies most sheltered from inflation. Food inflation reached 10 percent in October, more than twice the 4.4 percent headline rate.

China's stocks are poised for a "very strong" 2011 as food prices ease by April, said Donald Straszheim, director of China research at International Strategy & Investment Group.

The index tracking financial companies slid 1.6 percent, the biggest drop on the CSI 300 and extending a 24 percent rout this year that was spurred by tighter curbs on lending.

The China Banking Regulatory Commission may require lenders to assign 100 percent risk weightings for loans fully covered by cash flows, up from the current 50 percent, and as much as a 300 percent for uncovered loans, Barclays said in a note today, citing a China Business News report published Tuesday.

The risk-weighting rule has already been made official, the note said, citing unidentified banks. Agricultural Bank, the nation's third-largest by assets, lost 1.1 percent to 2.62 yuan, the biggest drop since Dec 8. China Construction Bank Corp declined 0.4 percent to 4.70 yuan, extending a 22 percent plunge in 2010.

Agricultural Bank will be hurt most by the change, Barclays analysts May Yan and Allen Zhang wrote. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.2 trillion) credit they've extended, a person with knowledge of data collected by the industry regulator said in July.

Bloomberg News