China's Stocks Fall for a Second Day; Financials Lead Decline

By Chua Kong Ho

July 16 (Bloomberg) -- China's stocks fell for a second day after state media said domestic output expanded at a slower pace in the first six months and the head of the U.S. central bank warned of increased risks to the world's largest economy.

China Merchants Bank Co. led financial shares lower. China Petroleum & Chemical Corp., the country's largest refiner, and Air China Ltd. rose after crude oil retreated by more than $6 a barrel yesterday.

``There's a wall of worry to get over,'' said Adam Tejpaul, Hong Kong-based head of Asia investments at JPMorgan Private Bank, which oversees about $400 billion. ``There's no reason to believe what's happening in the U.S. won't happen here in Asia.''

The CSI 300 Index, which tracks shares traded in Shanghai and Shenzhen, fell 95.88, or 3.4 percent, to 2,757.10 at the 11:30 a.m. local-time break, capping a two-day, 7.4 percent decline. A measure of financial stocks accounting for 43 percent of today's drop. Only 11 of the benchmark index's 300 constituents rose.

China's economic growth slowed in the first six months of this year, state-run Xinhua News Agency reported yesterday, citing Zhang Ping, head of the National Development and Reform Commission. Federal Reserve Chairman Ben S. Bernanke yesterday said the risks of an economic slowdown in the U.S. are increasing.

Merchants Bank declined 4.5 percent to 21.90 yuan. Shanghai Pudong Development Bank Co., whose shareholders include Citigroup Inc., slumped 5.3 percent to 20.67 yuan.

Consumer Prices

Expansion of the world's fourth-largest economy slowed to 10.6 percent in the first quarter from a year earlier, after a pace of 11.9 percent in 2007, the fastest in 13 years. The government is scheduled to release second-quarter consumer prices and growth statistics tomorrow.

``Banks have a close correlation to economic growth,'' said Xu Shuang, a fund manager at Shanghai-based SYWG BNP Paribas Asset Management Co., which manages $2.9 billion. ``Their earnings may have peaked in the first half.''

China Petroleum, also known as Sinopec, gained 0.9 percent to 10.30 yuan on speculation cheaper oil will reduce losses at its refinery business. China Southern Airlines Co., Asia's biggest carrier by passenger numbers, added 0.5 percent to 7.75 yuan.

Crude oil fell $6.44 a barrel, or 4.4 percent, to $138.74 a barrel yesterday due to concern a slower U.S. economy will curtail demand.

The Shanghai Composite Index, a measure of stocks on the larger of the nation's two exchanges, fell 2.4 percent to 2,713.07. The Shenzhen Composite Index dropped 3.4 percent.

The following shares also rose or fell in China. Stock symbols are in parentheses after company names:

Power producers: Huaneng Power International Inc. (600011 CH), a unit of China's largest power producer, fell 0.29 yuan, or 4.2 percent, to 6.65. The company said it may post a loss in the first half of this year because record coal prices raised costs.

Huadian Power International Corp. (600027 CH), a unit of the country's fourth-biggest electricity producer, slid 0.20 yuan, or 4.2 percent, to 4.56. The company also said it will post first- half losses due to rising coal costs.

Shenzhen Zhongjin Lingnan Nonfemet Co. (000060 CH), a mining company, dropped 0.87 yuan, or 5.9 percent, to 13.86 after abandoning a bid for Australia's Herald Resources Ltd.

Sinotrans Air Transportation Development Co. (600270 CH), a Chinese air freight company, jumped 0.19 yuan, or 2.2 percent, to 8.78, after saying first-half profit may have doubled on gains from a stake sale of a subsidiary.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net