SHANGHAI - Mainland stocks fell to the lowest in two weeks on Thursday and the yuan weakened on concern the slowdown in the United States and Chinese economies will derail the global recovery.
"There's uncertainty over the global and the domestic recoveries," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co, which oversees $285 million. "The correction in the market isn't over yet and the index may drop to a lower level on weaker sentiment."
The Shanghai Composite Index lost 32.02, or 1.2 percent, to 2575.48, the lowest since July 27. The CSI 300 Index fell 1.2 percent to 2816.39.China's economic growth is slowing and inflation is accelerating, reports said this week.
Data released on Tuesday indicated import demand slowed more than estimated, while reports on Wednesday showed industrial output rose by the smallest amount in 11 months, retail sales growth eased and new loans climbed less than expected.
The yuan fell the most in seven weeks on speculation policymakers will counter appreciation amid signs of slowdown in the world's third-largest economy.
The People's Bank of China lowered its daily reference rate by 0.36 percent to 6.8015 yuan per dollar on Thursday, the steepest drop since a dollar peg was scrapped in July 2005, after a gauge of the greenback's strength jumped the most since 2008.
The odds that the Chinese government will ease its tightening policies have fallen given the inflation outlook, according to Deutsche Bank AG economist Jun Ma.
"The probability of near-term policy easing has declined, rather than increased, despite the worsening economic numbers," Ma said. "The rising CPI inflation trend also lends an additional support to this view."
The Shanghai index has advanced 9 percent from this year's low on July 5 as investors speculated the government would ease property curbs and allow more lending to counter slowing growth.
That's pared 2010 losses to 21 percent, after the government increased down payment requirements on home sales and ordered banks to set aside more deposits as reserves.
The country may start raising interest rates from the fourth quarter because of accelerating inflation, large wage increases and "loose" liquidity conditions, according to a report from RBC Capital Markets.
"We expect China to join the regional trend in favor of gradual policy normalization sometime soon, forecasting an initial rate hike in Q4," RBC analysts wrote in a note.
Hang Seng declines
Hong Kong stocks fell for a third day, led by banks, and after Tencent Holdings Ltd forecast slower growth.
The Hang Seng Index slipped 0.9 percent to close at 21105.71, extending its drop in the past three days to 3.2 percent. The gauge is poised for its biggest weekly loss since July 2.
The Hang Seng China Enterprises Index of H shares of mainland companies declined 1.2 percent to 11597.02.
"The Citic rights offer provides an excuse for the market to take a breather," said Steven Leung, director of institutional sales at UOB-Kay Hian Ltd.