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Chinese Shares Breach 2,000-point Mark
Update: 9/17/2008 10:40:00 AM Source: China Hotel


Chinese shares ended 4.47 percent lower Tuesday to breach 2,000-point level following Wall Street's turmoil overnight triggered by Lehman Brothers' bankruptcy, despite the central bank's latest move of cutting the lending rate to boost the market.

The central bank announced yesterday it will cut the benchmark one-year lending rate by 27 basis points to 7.20 percent, the first reduction since February 2002, with deposit rates unchanged, and it lowered the reserve requirement ratio for small- and medium-sized commercial banks.

The benchmark Shanghai Composite Index broke the 2,000-point level to close at 1,986.64, down 93 points or 4.47 percent, while the Shenzhen Component Index dropped 0.89 percent to 6,873.61.

The banking sector suffered heavy losses today as profit margins of large commercial banks were squeezed by the lower lending rate. The share price of Industrial and Commercial Bank of China, the country's biggest lender, plunged 9.95 percent to 3.80 yuan. Bank of China tumbled 9.17 percent to 3.17 yuan, and China Merchants Bank also fell 9.97 percent to 16.07 yuan.

Cao Xuefeng, an analyst with West China Securities, said banks were under pressure because of the rate cut. "Over the short term, the policy move will reduce banks' profits due to the narrower interest spread," Cao said.

Soochow Securities' analyst Zhu Liang said the central bank's reason for announcing the lending rate cut yesterday was to cushion declines today in the wake of developments on Wall Street.

"Otherwise, the market could have been even worse today," Zhu said, adding that more fiscal policies boosting the economy are expected to follow over the remainder of the year.

In neighboring markets, Hong Kong's Hang Seng Index tumbled 5.44 percent to a near two-year low. Japan's Nikkei 225 average also slid 4.95 percent to a three-year low today, after Lehman Brothers sought bankruptcy protection and fears about the US financial system knocked equity markets down across the world.

Editor: canton fair

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