By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-12-13 16:21

Investors dumped their shares on Thursday amid concerns over another round monetary tightening, pushing a key index down below the psychologically important 5,000-point mark.

The accelerating growth in the Consumer Price Index (CPI) has a considerable impact on the country's monetary policy, central bank governor Zhou Xiaochuan said Wednesday.

In November, the CPI rose 6.9 percent year-on-year, the fastest pace since December 1996, sparking fears of another interest rate hike before the year-end.

Zhou said the CPI increase was mainly driven by rising food prices, and his agency is studying whether an adjustment in money supply or interest rates could solve the problem effectively.

The central bank has raised interest rates five times and bank reserve ratio 10 times so far this year to curb inflation and prevent the world's fourth largest economy from overheating.

Earlier this month, the country's top leaders decided to shift to a "tight" monetary policy from a decade-old "prudent" one to keep the economy on track and to put inflation in check.

Zhou also expects the weak American dollar to affect the Chinese economy, albeit in a mild way. "We support a strong US dollar and support the US economy to get out of the impact of the credit crisis," he said.

The tightening concerns as well as worries about the fallout from the slowing US economy prompt many Chinese investors into panic selling, leading to a 2.7 percent loss in the Shanghai Composite Index to 4,958.04 points at the end of Thursday's session.

Since peaking in mid-October, the gauge has been highly volatile, falling as much as 22 percent before recovering a bit to hover around the 5,000-point mark.

Other indicators also fell. The Shenzhen Composite Index dropped 3.72 percent to 1,302.24, while the CSI 300 Index of major companies in the two bourses fell 3.8 percent to 4,884.34.

Blue chips performed poorly. PetroChina continued its weak performance since its Shanghai debut last month, falling 1.96 percent to close at 30.53 yuan per share. Sinopec was a bigger loser, tumbling 4.09 percent to 22.07 yuan.

Financial shares were also hit badly, with China Construction Bank shedding 1.7 percent to 9.83 yuan. Bank of China went down 1.98 percent to 6.44 yuan.

Analysts expect the market to fall further on Friday due to the lingering tightening concerns. China's central bank usually annouced interest rate hikes during the weekend.