China Stocks Fall to Seven-Month Low on EU, Property Concerns

May 6 (Bloomberg) -- China’s stocks declined, driving the benchmark index to a seven-month low, on concern a European debt crisis and Chinese government curbs on property will hurt economic growth.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd., the nation’s biggest makers of the metals, dropped after commodity prices plunged. China Vanke Co., the largest listed developer, fell 2 percent even after reporting higher property sales for April. Huaxia Bank Co. plunged 10 percent after saying it plans to raise as much as 20.8 billion yuan ($3 billion) in a private placement to replenish capital.

“Sentiment is very weak and worries among investors about slowing economic growth have been intensifying,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai. “Stocks still have further room for declines.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 30.01, or 1.1 percent, to 2,827.14 as of 10:01 a.m., set for its lowest close since Sept. 30. The CSI 300 Index retreated 1.3 percent to 2,996.13.

The Shanghai gauge has slumped 14 percent in 2010, Asia’s worst performer, as the government unwound monetary stimulus and stepped up measures to prevent a housing bubble inflated by record lending last year.

Stock markets worldwide extended losses today, erasing the 2010 advance in the MSCI World Index, and the euro fell yesterday to its lowest level against the dollar in more than a year on concern countries in addition to Greece will need a bailout.

Jiangxi Copper dropped 1.4 percent to 31.89 yuan, extending a 20 percent loss this year, and Aluminum Corp. of China Ltd. declined 2.3 percent to 10.85 yuan.

Commodity Prices

The Reuters/Jefferies CRB Index of 19 raw materials slipped as much as 1.9 percent yesterday, extending a 2.3 percent retreat a day earlier. Crude oil fell 3.4 percent and copper slid 0.8 percent in New York. percent to 472 yen.

The European Union is China’s biggest export destination.

China Vanke dropped 2 percent to 7.34 yuan, even after reporting its April property sales rose 48 percent from a year earlier. Gemdale Corp. fell 2.5 percent to 6.32 yuan.

Shenzhen city will limit home purchases by foreigners and citizens of Hong Kong, Macau and Taiwan to one residence until the end of the year, the China Securities Journal reported, citing unidentified people familiar with the matter.

Property Curbs

The government last month imposed a ban on loans for third-home purchases and raised mortgage rates and down-payment requirements for second-home purchases to curb housing prices, which rose at a record 11.7 percent in March.

An interest rate increase for China in the second half of this year remains a possibility, the China Securities Journal said in an editorial. The outlook for inflation is “not optimistic,” the Beijing-based newspaper wrote.

China is likely to reverse policies cracking down on the property market because they will put the nation’s 8 percent economic growth target for this year at risk, Macquarie Securities Ltd. said.

“Ironically, it is the very effectiveness of the property market measures that undermine their credibility,” Hong Kong- based economist Paul Cavey said in an e-mailed report. “Current policies toward property can’t be sustained.”

Huaxia Bank dropped 10 percent to 11.45 yuan as the shares resumed trading for the first time since April 13. The Chinese bank said it will sell 1.86 billion yuan-denominated shares at 11.17 yuan apiece.

Yuan Peg

Chinese banks need to restore capital after extending record loans last year to fuel a recovery in the world’s third- largest economy. The government is stepping up scrutiny of banks to prevent last year’s credit boom from triggering a financial meltdown.

Separately, China may scrap the yuan’s peg to the dollar next week, moving before economic talks with the U.S. this month and after the fanfare of the World Expo opening in Shanghai, Standard Chartered Bank said.

The timing is “a best guess,” Shanghai-based economist Stephen Green said in a phone interview. “Next week strikes us as a good opportunity.”

China has pegged the yuan at about 6.83 per dollar since July 2008, fueling tension with the U.S., where lawmakers accuse the nation of securing an unfair advantage in trade.