Chinese shares decline, haunted by Baosteel

China's shares sagged 1.6 percent on Monday as investors cashed out of large caps amid lingering concerns that a record stock sale by Baoshan Iron and Steel Co Ltd would suck funds from the market. The Shanghai composite index closed at 1,197.735 points to mark its lowest finish since April 5. A common index grouping 300 of the largest counters on the Shanghai and Shenzhen exchanges fell 1.1 percent to 963.772 points.
"The market could rebound tomorrow, but negative factors such as Baosteel's mammoth share offer could keep bourses depressed," said Cao Jianming, an analyst at Orient Securities.
The benchmark index has lost 5.4 percent in 2005, extending a 15 percent dive in 2004 that made it the world's worst-performing major index. It had wilted under pressure from government-ordered credit curbs and a bulging pipeline of initial public offerings.
Top steel maker Baoshan Iron and Steel Co Ltd launched an additional share issue this week to help raise capacity and profits this year, by buying assets worth 27.47 billion yuan ($3.3 billion) from its unlisted state-run parent.
Baosteel's shares were the day's most actively traded, dropping 1.6 percent to 6.04 yuan.
Its share sale surpasses the record of 11.8 billion yuan held by top Asian oil refiner Sinopec Corp Wuhan Iron and Steel Co Ltd, China's third-largest steel producer, finished 2.5 percent lower at 3.86 yuan.
"Some institutions cashed out of large-caps such as Yangtze Power this morning to prepare funds for Baosteel's stock offer," said Chen Huiqin at Huatai Securities.
"This situation is likely to last for a few days and push the benchmark index easily below the key 1,200-point level."
Yangtze Power Co Ltd, which manages the world's largest hydropower project, the Three Gorges Dam, closed down 2.7 percent at 8.33 yuan, its lowest since September 13, 2004. It posted a 27 percent slide in first-quarter earnings on Friday.
Huaneng Power International Inc, China's largest Hong Kong-listed power producer, dipped 6.2 percent to 6.83 yuan.
The power producer posted over the weekend a near 44 percent slump in first-quarter net profit as growing generation capacity failed to offset rising fuel costs.