An investor at a brokerage in Shanghai. The Shanghai Composite Index lost 0.87 percent to close at 2958.08 on Tuesday. [Photo / China Daily]

SHANGHAI - Stocks on the Chinese mainland fell on Tuesday, dragging the benchmark index down for the first time in three days. The retreat came as investors speculated that the government will raise borrowing costs to cool inflation.

Beiqi Foton Motor Co sank 4.27 percent and Gree Electric Appliances Inc dropped from a record high, pacing declines among consumer-related companies, after the China Securities Journal said the central bank may boost interest rates as early as next month. China XD Electric Co plunged the most on record after earnings trailed estimates and a brokerage cut its rating. Industrial Bank Co rose to an 11-month high after net income beat analyst forecasts.

"The central bank has made clear the need for further measures to control inflation," said Wu Kan, a fund manager at Dazhong Insurance Co, which oversees $285 million. "That adds to the uncertainty in the market. Banks are rallying because of better-than-expected profit growth."

The Shanghai Composite Index lost 0.87 percent to 2958.08 at the 3 pm close. The CSI 300 Index slid 0.99 percent to 3257.98.

China's central bank may increase interest rates in April or around the middle of this year as inflation continues to exceed the government's target, the China Securities Journal said in a front page editorial on Tuesday. Consumer prices may increase by 6 percent in June and July, the editorial said.

Beiqi Foton tumbled 4.27 percent to 23.52 yuan ($3.58). Gree Electric dropped 3.61 percent to 23.20 yuan.

Related readings:  China stocks close lower Tuesday  PBoC tipped to lift yuan clearing interest rate  China to further reform exchange rate, interests rate  PBOC stresses management of liquidity

China XD Electric slumped 9.64 percent to 7.59 yuan, its biggest decline since it began trading in January last year. The company's 2010 earnings for each share missed consensus estimates, Li Xiaoguang and Qi Qi, analysts at Shenyin & Wanguo Securities Co, wrote in a report. They cut the stock's rating to "outperform" from "buy".

Shanghai Electric Group Co fell 2 percent to 7.85 yuan after the South China Morning Post said its nuclear power projects may be delayed.

A gauge of financial stocks rallied 0.6 percent, the only increase among 10 industry groups. Industrial Bank rose 2.65 percent to 29.39 yuan. Net income rose to 18.5 billion yuan last year, higher than the average 17.3 billion yuan of 19 analyst estimates compiled by Bloomberg.

China Minsheng Banking Corp jumped 2.18 percent to 5.63 yuan.

Bloomberg News