China and Hong Kong shares fell on Wednesday with losses from profit-taking accelerating after Moody's warned it may downgrade Spain's debt. Hong Kong's Hang Seng slid 2 percent, wiping out all of its weekly gains, although the decline came on still tepid turnover and was led mostly by a selloff in oil counters and heavily-weighted mainland banking shares.
Cathay Pacific tumbles most in 20 months "It looks like some funds are winding back and cutting risk going into year end. We've definitely seen the quantity of fund inflows decrease from say a couple of months ago," said Ben Kwong, chief operating officer at KGI Asia in Hong Kong.
The drop in the Hang Seng coincided with a weakening of the Hong Kong dollar, suggesting some capital may be flowing out of Hong Kong as funds close books for the year. Cathay Pacific Airways Ltd, the top performer among large caps in Hong Kong this year with gains of more than 54 percent, fell 6.1 percent.
Airlines are amongst the worst performers this month after some investors saw China's plans to develop a high-speed rail network hitting profits and as the sector's fast rebound after the financial crisis plateaus. Royal Bank of Scotland analyst Andrew Orchard in Hong Kong said that a year-on-year declines in load factors on most of Cathay Pacific's routes last month may be a sign the airline added too much capacity last year as traffic was recovering.
Oil major Petrochina fell 3.6 percent and Sinopec was down 3 percent as crude prices eased to $87.90 with charts pointing to further losses a cautious US Federal Reserve dampened expectations for a faster recovery. China's key stock index closed down 0.5 percent on low volume as profit-taking hit railway stocks, which had enjoyed a rally on government spending plans. Fears about the availability of cash in the stock market hampered also weighed on prices for the second consecutive day.
China's benchmark short-term money market rate, the main barometer of short-term liquidity supply, jumped to a 2-year high as banks prepared funds to meet a hike in reserve requirements. The Shanghai Composite Index fell to 2,911.4. Its 250-day moving average, now at 2,862 points, should provide strong support for the index and analysts are optimistic about the prospects heading into 2011 as strong earnings and reasonable valuations underpin the market.
Financials were among the biggest drags on the index with Industrial and Commercial Bank of China 1.7 percent lower. China's central bank has told six of the country's biggest lenders that a special increase in required reserves will be extended, the latest attempt to quell inflation. Turnover of Shanghai A shares dropped to 143 billion yuan from 152 billion yuan on Tuesday.
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