TAIPEI: Concerns that a trade agreement with the mainland may be delayed until next year sent Taiwan stocks plummeting 3.53 percent yesterday, on their way to its worst close in three months.

The market reaction came in the wake of a statement by Mainland Affairs Council chairwoman Lai Shin-yuan that an economic cooperation framework agreement may be signed next year.

"Investors are disappointed by the news; they were expecting the agreement to be signed this year," Monika Yang, who helps oversee $10 billion at Hamon Asset Management Ltd in Hong Kong, said by phone. "Now, any good news in the market is overshadowed by this."

Taiwan leader Ma Ying-jeou said in May that he hoped to sign a framework agreement with the mainland to ease restrictions on trade, without giving a timeframe. The accord may be similar to an agreement the mainland has signed with Hong Kong to waive tariffs and give preferential market access for the city's banks, brokerages and insurers.

The main TAIEX share index dropped 239.04 points to 6,530.82, its worst single day percentage drop since April 17.

Turnover was slightly more active at NT$121 billion ($3.7 billion) compared with Friday's NT$110 billion, but it was still relatively light as investors were cautious before the US earnings season.

"Investors are taking the news as an excuse to sell their stocks because at this point, they really don't expect the stocks to climb higher," said Alex Huang, a research department director at Mega International Securities Co.

Analysts expected the index to continue to fall this week to trade mainly between 6,350 and 6,800 points.

"The index could find support around 6,350, but that's if the corporate earnings in the US turn out well. If not, the figures could very well send the index below 6,350," Huang said.

The banking and insurance sub-index plunged 6.44 percent, with Cathay Financial Holding, Taiwan's top listed financial holding firm, dropping nearly by its daily 7 percent limit as the company's worse-than-expected second quarter profit added pressure to the stock.

Agencies

(HK Edition 07/14/2009 page2)