Shanghai Municipal Government : Shares fall by the most in a week

Shanghai stocks yesterday fell by the most in a week as the central bank's money injection failed to calm the market.

The Shanghai Composite Index fell 3.23 percent to 2,880.48 points, the largest daily decline since January 15.

The index has slumped more than 18 percent this year.

The People's Bank of China yesterday injected a combined 400 billion yuan (US$60.8 billion) into the banking system through open market operations and another 352.5 billion yuan through medium-term lending facilities.

However, an index measuring liquidity tightness among banks continued to rise to a nine-month high.

'The market is facing seasonal liquidity stress before the Chinese New Year, and the liquidity gap is estimated at 3 trillion yuan,' said Guo Jianan, analyst at Lianxun Securities. 'The market sentiment is dim as pressure for a capital outflow increases while hopes for a reserve requirement ratio diminish.'

Lu Jie, head of China research at Robeco Asia Investment Center, said the market could stabilize around March, when Chinese leaders are expected to unveil policies to support the economy at the National People's Congress, and believed that 2,800 points could be the benchmark index's floor for this year.

Shi Wei, who manages roughly 4 billion yuan at Shanghai-based hedge fund Broad Capital, said ample liquidity would prevent an extended bear market, but a poor economy means there's not much room to go up either.

'The investment strategy this year is to be brave enough to buy during slumps and quick to take profit during rebounds,' he said.

Shaanxi Aerospace Power Hi-Tech Co slumped 7.7 percent to 19.48 yuan while Yanzhou Coal Mining Co shed 4 percent to 8.17 yuan.