China's Benchmark Stock Index Tumbles

China's stocks plunged 8.1 percent, the most since February 2007, after the central bank ordered lenders to set aside record reserves to curb credit growth and inflation.

More than half of the benchmark stock measure's 300 members slumped by the 10 percent daily limit, dragging the CSI 300 Index 45 percent below its Oct. 16 record. The gauge fell 282.94 points to 3,206.56 in Shanghai, its lowest close since April 19, 2007. Shares resumed trading after a holiday yesterday.

Industrial & Commercial Bank of China Ltd. led banks lower after the central bank said June 7 it will raise the reserve ratio for the fifth time this year by a full percentage point, withdrawing about $61 billion from the financial system. China Vanke Co. dropped on concern institutions will curb loans to developers and home buyers. Air China Ltd. fell on concern surging oil prices will increase fuel costs.

The CSI 300 has fallen 40 percent this year, the steepest decline among the world's 20 biggest equity markets, on concern measures to keep price increases in check will erode earnings. The rout has wiped at least $1.31 trillion from China's stock market and helped the CSI 300 close a price-earnings gap with the Standard & Poor's 500 Index to 3.1 percent from 127 percent at the start of 2008, data compiled by Bloomberg show.

Inflation accelerated to 8.5 percent in April, close to the fastest in almost 12 years. The rate slowed to 7.7 percent last month, according to two government officials who said they saw official data.

Today's drop on the CSI 300 was the biggest since Feb. 27, 2007, when the government approved a special taskforce to clamp down on illegal share offerings. Zhang Wangjun, a spokesman for the China Securities Regulatory Commission, declined to comment today. Lai Xiaomin, spokesman of China Banking Regulatory Commission, was not immediately available for comment.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 7.7 percent to 3,072.33, taking its drop this year to 42 percent. The Shenzhen Composite Index fell 8 percent to 928.2.

China, Bloomberg
6/10/2008 7:17:40 AM