China Stocks Fall to 19-Month Low; Merchants Bank, Shenhua Drop

By Zhang Shidong

Sept. 2 (Bloomberg) -- China's stocks fell to the lowest in 19 months, led by financial companies on concern the government will maintain lending curbs to tame inflation.

China Merchants Bank Co., the nation's biggest dual- currency credit-card issuer, sank 3.2 percent on concern demand for loans will weaken. Inflation is a ``primary concern'' that threatens macroeconomic stability, central bank Deputy Governor Hu Xiaolian said in Buenos Aires yesterday. China Shenhua Energy Co., the nation's largest coal producer, retreated 2.8 percent after oil and metal prices dropped.

``As the economy is in a downturn, you cannot expect the market to stage any substantial comeback immediately,'' said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, lost 23.76, or 1 percent, to 2,285.41 at the close, the lowest since Feb. 5, 2007.

The measure has plunged 57 percent this year, the most among 91 major benchmark indexes tracked by Bloomberg, on concern measures to cool inflation will damp profit and economic growth.

Merchants Bank dropped to 20.88 yuan. Industrial & Commercial Bank of China Ltd., the nation's biggest listed bank, lost 2.1 percent to 4.69 yuan. China Construction Bank Corp., the second-largest, dropped 1.7 percent to 5.19 yuan.

Shenhua, Jiangxi

Shenhua slipped to 26.84 yuan. Datong Coal Industry Co., China's second-largest coal company by capacity, lost 0.9 percent to 15.90 yuan. Jiangxi Copper Co., China's second- biggest producer of the metal, fell 0.9 percent to 15.99 yuan.

Oil futures plunged as much as 8 percent to $106.22 a barrel in New York after the weakening of Hurricane Gustav eased concern that rigs and refineries may be damaged.

A measure of six metals on the London Metal Exchange fell 2.4 percent yesterday, the lowest in two weeks. Zinc slipped 1.7 percent, copper 2.7 percent and nickel 4.6 percent.

Net income at 863 companies listed in Shanghai and 488 on the Shenzhen bourse rose by 16 percent on average in the first six months of 2008, the exchanges said in separate statements on Aug. 31. That compares with earnings growth of 69 percent for Shanghai and 99 percent for Shenzhen in the first half of 2007, according to exchange data.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 0.9 percent to 2,304.89. The Shenzhen Composite Index dropped 0.3 percent to 635.49.

The following companies were among the most active in China's markets. Stock symbols are in brackets after companies' names.

China Railway Group Ltd. (601390 CH), Asia's largest construction company, rose 0.06 yuan, or 1.1 percent, to 5.31, the highest close since Aug. 21. The company said overseas orders will reach 30 billion yuan ($4.4 billion) in the second half, more than double the value in the first half.

China Vanke Co. (000002 CH), the nation's biggest listed property developer, fell 0.08 yuan, or 1.2 percent, to 6.79, a second day of declines. Vanke said it will start selling as much as 5.9 billion yuan of five-year bonds tomorrow.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net