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Shanghai shares drop; HK pulls back from 5-mth high

Published 09/16/2010, 01:08 AM
Updated 09/16/2010, 01:12 AM
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* Shanghai down 1.5 percent; banks, manufacturing cos weak

* HK shares pull back from 5-month high

* Cosco Pacific jumps 5.6 percent on Goldman upgrade

* AgBank slips below IPO price in Shanghai (Updates to midday)

by Vikram S.Subhedar and Farah Master

HONG KONG/SHANGHAI, Sept 16 (Reuters) - Shanghai and Hong Kong shares fell on Thursday, with the Hang Seng index pulling back from a five-month high, as bank shares slid on reports of higher capital requirements in China.

A stronger yuan, which has risen for eight of the last 10 sessions, hurt shares of manufacturing companies that rely on exports. [ID:nECB000513]

The Shanghai Composite <.SSEC> fell 1.5 percent by midday with investors trimming positions ahead of holidays next week. Hong Kong's Hang Seng index <.HSI> was down 0.5 percent.

Bank shares were under pressure, with market players citing reports that China's banking regulator was considering a plan to raise the amount that top banks must keep in reserve to as much as 15 percent.

An official with the China Banking Regulatory Commission, however, told Reuters that the agency had not published any new regulatory requirements. [ID:nTOE68E08M]

Adding pressure on banks were reports that deposit rates at banks could be raised to help fight inflation. [ID:nTOE68E083]

Shares of Agricultural Bank of China <601288.SS>, which has the lowest tier-1 ratios among the 'Big 4' Chinese banks, fell 2.2 percent and were trading below their IPO price for the first time since its mid-July listing.

"The possibility of an interest rate hike is not large, but if deposit rates rise while lending rates stay the same, this will negatively affect banks and property," said Guo Yanling, analyst at Shanghai Securities.

The Shenzen Composite Index <.SZSC> fell 1.8 percent with export-oriented manufacturing companies broadly weaker.

Shares of consumer appliance firm Midea <000527.SZ> fell 4 percent. Suning Appliance <002024.SZ> fell 2.1 percent.

U.S. Treasury Secretary Timothy Geithner sharpened his criticism of China's exchange rate policies, saying the yuan was strengthening too slowly and that he will look for new ways to get Beijing to move faster. [ID:nLDE68F01M]

Airlines continued to outperform the index for the third consecutive session, boosted by prospects for a stronger yuan, as they buy aircraft in foreign currency.

China Southern Airlines <600029.SS> gained 1.1 percent, while Air China <601111.SS> rose 1.4 percent.

HK DOWN ON LOW VOLUME

Weak mainland banking shares, which have a large weighting on the Hang Seng index, dragged the Hong Kong market lower by midday.

The Hang Seng struggled to hold a five-month high on Tuesday as it approached technically overbought levels with its relative strength index approaching the 70-mark.

Shares of China Construction Bank <0939.HK> fell 1.5 percent while Industrial & Commercial Bank of China <1398.HK> was down 1.2 percent.

New capital requirements, if enforced, would most impact Agricultural Bank of China <1288.HK> and Bank of China <3988.HK>, both of which would require further fundraising in the next two years, said Sandra Cai, an analyst at Samsung Securities.

AgBank shares fell 4.1 percent in Hong Kong while Bank of China <3988.HK> was 0.5 percent lower.

Bucking the broader market trend, Cosco Pacific <1199.HK> jumped 5.6 percent after Goldman Sachs upgraded the stock to a "buy" and added it to its Conviction Buy list.

The brokerage expects the company to post a solid set of third quarter results that would reflect better performance at its new ports and said the stock's recent underperformance versus the broader index was not justified.

Shares of Foxconn International <2038.HK> succumbed to profit-taking in a weak market and were down 3.5 percent, the top losers on the index, giving back almost all of their gains from the past two sessions.

(Editing by Ken Wills)

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