China Stocks Sink to 7-Week Low as PBOC Fails to Cut Money Rates

Chinese stocks slumped, dragging the benchmark gauge to the lowest level in seven weeks, as small companies plunged and the central bank's first cash injection in two weeks failed to reduce money-market rates.

Tsinghua Tongfang Co., a maker of personal computers, tumbled 6.2 percent to lead losses among technology companies. Zhejiang Beingmate Technology Industry & Trade Co. (002570) fell 8.9 percent after third-quarter net income plunged. The ChiNext index of Shenzhen-listed companies sank 5.1 percent, the most since June 24. The fixing on the seven-day money-market rate rose seven basis points to 5 percent. A gauge of financial shares pared its gain to 1 percent after rallying 3.6 percent.

The Shanghai Composite Index (SHCOMP) fell 1.7 percent to 2,097.38 at 1:21 p.m. local time, reversing an advance of 1.4 percent. The People's Bank of China added 13 billion yuan ($2.1 billion) using seven-day reverse-repurchase agreements today, according to a trader at a primary dealer required to bid at the auctions.

"We were rising in the morning because of the reverse repo, but after pricing that in, we have to note the market is still in a weak mode," said Zhang Haidong, analyst at Tebon Securities Co. in Shanghai. "Liquidity is still tight."

The Shanghai measure has lost 3.4 percent this month, poised for the first decline since June, and trades at 8.4 times projected profits for the next 12 months. That's lower than the seven-year average of 15.4.

The CSI 300 Index dropped 1.2 percent to 2,338.45. The Hang Seng China Enterprises Index (HSCEI) of mainland companies traded in Hong Kong climbed 0.6 percent. The Bloomberg China-US Equity Index fell 1.2 percent in New York yesterday.

Company Earnings

Trading volumes in the Shanghai index were 1 percent above the 30-day average for this time of day, after falling to the lowest level in two months yesterday, according to data compiled by Bloomberg. Earnings at the 146 companies in the Shanghai gauge tracked by Bloomberg that reported results so far this quarter have trailed analyst estimates by 5.7 percent.

Tsinghua Tongfang dropped to 8.12 yuan. A gauge of technology companies fell 4.4 percent on the CSI 300, the most among 10 industry groups. Zhejiang Beingmate slumped 8.9 percent to 33.05 yuan after third-quarter net income plunged 59 percent from a year ago. The ChiNext pared this year's gains to 71 percent.

"Small-cap companies had risen a lot previously and earnings so far aren't good, so it's damping market sentiment," says Wei Wei, an analyst at West China Securities. "There's still concern about the economy. The only thing supporting the market today is banking stocks."

Lenders Gain

Ping An Bank Co. climbed 4.8 percent to 13.75 yuan. Industrial Bank Co. advanced 3.4 percent to 11.93 yuan.

China may start a trial of preferred share offerings in industries including banking and electricity generation, the China Securities Journal reported, citing unidentified investment bankers.

"This could alleviate some of the funding pressure faced by medium-size banks,"said Gerry Alfonso, a trader at Shenyin & Wanguo in an e-mail.

PetroChina Co. and China Petroleum & Chemical Corp. are due to release third-quarter results later today.

The Shanghai index has slumped 7.1 percent this year on concerns a slowing economy will hurt profit growth and the government will introduce measures to curb property-price gains.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., climbed 0.3 percent to $36.55 in New York. NQ Mobile Inc. extended its three-day plunge to 62 percent after Muddy Waters LLC accused it of fabricating revenue, while Sohu.com Inc. tumbled on plans to boost marketing expenses.