By Jin Jing (China Daily)
Updated: 2008-04-17 07:17

SHANGHAI: The mainland stock market fell 1.69 percent Wednesday, after the government announced a batch of macroeconomic figures that intensified investors' worries over continued tightening measures.

Soon after the market closed, the People's Bank of China announced the raising of the bank reserve requirement ratio by 50 basis points to 16 percent, effective from April 25.

The move is expected to cool down the economy, curb inflation and draw back excess liquidity at banks.

The benchmark Shanghai Composite Index slid 56.75 points to 3291.6, with 742 out of 911 stocks closing lower. The Shenzhen Component Index tumbled 2.69 percent, or 332.52 points, to close at 12057.28.

The turnover on two bourses amounted to 78.8 billion yuan ($11.3 billion), down 10.6 percent from Tuesday, mainly because many investors were taking time to study the implications of the latest economic figures, analysts said.

"The central bank's latest move demonstrated its tightening stance despite the moderation in last month's CPI inflation," said Liang Hong, an economist at Goldman Sachs.

"The hike is within our previous expectation, and its impact on the market will be mild," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.

Analysts said that the statistics announced yesterday had a relatively negative impact on the stock market - the tightening credit and monetary policies are not expected to relax, which will in turn further squeeze corporate earnings.

"Yesterday's data suggested that China's economy has slipped further into a downturn despite a higher than expected GDP growth," said Sun Mingchun, an economist at Lehman Brothers.

"The decline in last month's CPI inflation rate from February should reduce the chance of immediate interest rate hikes," Sun said.

"The data also showed that the prices of industrial products are rising quickly, which means that inflation will continue and the government is likely to maintain the tightening bias in monetary policy in the near term," said Zhu Haibin, an analyst at Essence Securities.

Although tighter monetary policy remains a possibility, "the current bout of inflation was largely a supply-side phenomenon", said Jing Ulrich, chairman of JP Morgan Securities China Equities, who doubted the effectiveness of any increase in interest rate.

"In the midst of a global slowdown, the scope for a tighter monetary policy is also constrained by concerns about growth," she said.

"At the minimum, we see less need for more aggressive tightening in the near term," Sun of Lehman Brothers added.

However, the latest increase in the bank reserve requirement ratio hike was widely expected by analysts and economists, although they said the magnitude of the change was not sufficient to control monetary expansion and inflation.

"Once inflation moderates and growth slows, policies could shift quickly to contain downside risks for the economy," said Peng Ken, an economist at Citigroup.

In the mainland stock market, steel, electric power and real estate companies fell sharply yesterday.

Baosteel dived 5.22 percent, and real estate developer Vanke A sunk 4.7 percent.

Airlines companies also headed south because of the rising cost from soaring international oil prices. China Southern Airlines plunged 9.95 percent and China Eastern Airlines dived 5.58 percent.