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China, HK shares slide as commodities, banks retreat

Published 10/27/2010, 05:16 AM
Updated 10/27/2010, 05:20 AM
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* Hang Seng falls 1.9 pct, pulls back from overbought levels

* Shanghai down 1.5 pct; selling accelerates into close

* Commodity, materials lead losses as dollar jumps

* China bank H-shares down before earnings reports (Updates to close)

By Vikram S.Subhedar and Farah Master

HONG KONG/SHANGHAI, Oct 27 (Reuters) - Shares in Hong Kong and Shanghai slid on Wednesday as a stronger dollar sparked a selloff in materials and commoditie stocks, while banking shares retreated as investors grew cautious ahead of earnings reports this week.

Hong Kong's benchmark Hang Seng index <.HSI> fell 1.9 percent to 23,164.6 points, its steepest fall in over four months as it pulled back sharply from technically overbought levels.

China's key stock index <.SSEC> closed down 1.5 percent at 2,997, slipping below the psychologically important 3,000-point level which retail investors had hoped would hold.

"It was a combination of things this morning - the report on the Fed's quantitative easing being less than market expectations, the dollar's jump and the subsequent selloff in commodities," said the head of a regional trading desk at a European bank in Hong Kong.

"Volatilty picked up and I think some hedge funds were finally happy to see some of their bearish bets pay off," said the trader.

The Wall Street Journal said on Wednesday that the Federal Reserve would probably unveil a programme of U.S. Treasury bond purchases worth "a few hundred billion dollars", but gave no source for the report. Markets had been expecting it to spend around $500 billion or more as it struggles to revive the sputtering U.S. economy. [ID:nTOE69Q02H]

Energy-related stocks in Hong Kong saw the steepest declines as the dollar strengthened, pushing crude prices lower. [O/R]

China Coal <1898.HK> fell 5.9 percent, wiping out three days of gains. Oil majors Petrochina <0857.HK> and Sinopec Corp <0386.HK> lost 4.3 percent and 3.4 percent, respectively.

Banking shares were also lower, extending the previous day's losses, as investors took profits from recent gains in the sector and awaited results announcements from China's biggest lenders. [ID:nTOE69L0A3]

China Construction Bank <0939.HK> fell 2.8 percent and was the biggest drag on the Hang Seng Index.

Bucking the trend was Hang Lung Properties <0101.HK> which rose 3 percent, one of only two gainers on the Hang Seng, on reports that the company was in talks with authorities in Suzhou to help build a financial hub in the city.

SHANGHAI SLIDES BUT PROPERTIES OUTPERFORM

Shares of metal-related plays, in particular gold mining companies, also lost ground in Shanghai as commodity prices remained depressed through the trading day.

Zhongjin Gold <600489.SS> fell 4.3 percent, while Zijin Mining Group <601899.SS> shed 4.5 percent.

Shanghai Petrochemical Corp <600688.SS>, a unit of Sinopec, dropped 4.6 percent and Shanxi Coal International Energy <600546.SS> was down 4.7 percent.

"The market is looking to consolidate in certain sectors after large gains," said Cheng Yi, analyst at Xiangcai Securities in Shanghai.

Analysts said the index was likely to continue moving narrowly around 3,000 points in the coming days, cautioning that a possible withdrawal of liquidity from the market would halt any significant rally.

Property developers outperformed the broader index, with the Shanghai property sub-index <.SSEP> trading higher for most of the day before dipping about 0.1 percent in the last half hour of trade.

Chinese developers have been laggards this year after Beijing cracked down on speculation in the property sector, but have benefitted in recent weeks from a shift of funds away from actual real estate investments into property stocks.

"Some money from the property market is flowing into property stocks today, but most of the time money will be driven into whichever hot areas investors are focusing on," said Xiangcai Securities' Cheng, who remains wary that gains in the sector may not last. ($1=6.68 Yuan) (Editing by Kim Coghill)

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