Violence in Middle East and surging oil prices fan concerns that inflation will accelerate

SHANGHAI - Stocks on the Chinese mainland fell the most in a month as worsening violence in oil-producing Libya and surging energy prices fanned concerns that inflation will accelerate and force the government to adopt more tightening measures.

Industrial and Commercial Bank of China Ltd (ICBC), the world's biggest bank by market value, and property developer China Vanke Co led declines in the CSI 300 Index. China Southern Airlines Co slumped 5.22 percent as oil prices jumped to the highest in more than two years after the son of Libyan leader Muammar Gaddafi threatened "rivers of blood" unless the uprising ends.

"The indices are facing pressure in the short-term as the market expects to see more tightening measures," said Zhang Xigang, fund manager at Bosera Asset Management Co which oversees the equivalent of $28 billion. "Property tightening will be more severe and curb growth in related industries."

The Shanghai Composite Index dropped 2.62 percent to 2855.52 at the 3 pm close on Tuesday, the most since Jan 20.

The CSI 300 Index lost 2.9 percent to 3163.58.

Oil jumped to the highest in more than two years as violence escalated in Libya, stoking concern that crude supplies will be disrupted as turmoil spreads through the Middle East and North Africa.

The offices of some Chinese companies in North Africa have been attacked and some employees injured, Shao Ning, vice-chairman of the State-owned Assets Supervision and Administration Commission, said at a briefing in Beijing. Shao didn't identify which companies were attacked or say how many employees were hurt.

New York oil futures for April delivery rose as much as 9.8 percent from the close on Friday, while London-traded Brent rose to the highest since September 2008.

China, Asia's biggest oil consumer, increased retail gasoline and diesel prices for the first time this year over the weekend.

China Southern slid 5.22 percent to 8.71 yuan ($1.32). China Eastern Airlines Corp lost 4.93 percent to 6.55 yuan. Air China Ltd fell 5.07 percent to 11.79 yuan. All three airlines raised fuel surcharges starting on Tuesday to offset higher oil prices.

A measure tracking banks and developers on the CSI 300 fell 3.2 percent.

ICBC lost 1.63 percent to 4.23 yuan. China Construction Bank Corp slipped 1.02 percent to 4.85 yuan.

China Vanke fell 3.33 percent to 8.12 yuan. Poly Real Estate Group Co slid 5.68 percent to 12.29 yuan.

Hong Kong stocks fell on Tuesday, sending the Hang Seng Index to its biggest drop in almost three months, as developers slid on concern the city may try to curb property prices and as tension escalated in the Middle East.

Hang Lung Properties Ltd, which gets about 84 percent of its revenue from Hong Kong, declined 2.4 percent on speculation the city's government may increase land supply. Airlines fell as oil prices rose. Alibaba.com Ltd plunged 8.6 percent after saying its chief executive officer resigned.

"The Hong Kong government may try to make some noise and tune up the market to let people know that it may impose policies and property prices won't continue to gain," said Castor Pang, Hong Kong-based research director at Cinda International Holdings Ltd. With unrest in the Middle East, "most investors in the stock market are trying to unload their portfolio to reduce their risk exposure."

The Hang Seng Index fell 2.11 percent to 22990.81 on Tuesday, the steepest decline since Nov 23.

Hang Seng China Enterprises Index slid 2.37 percent to 12351.66.

The declines mirror a global rout in equities as all benchmarks in Asia fell, following retreats in Europe.

Bloomberg News

(China Daily 02/23/2011 page16)