China stocks ended slightly lower on Tuesday as investors took a breather following a strong rally in the previous session and pondered the extent and impact of Beijing's interest rate reform. The blue-chip CSI300 index fell 0.1%, to 3,787.73, while the Shanghai Composite Index eased 0.1%, to 2,880.00 points. China lowered its new lending reference rate slightly on Tuesday, as expected, as the country's central bank kicked off new interest rate reforms designed to lower corporate borrowing costs.
The People's Bank of China (PBOC) on Saturday said the Loan Prime Rate (LPR) would become the lending benchmark for banks when setting rates for new loans to households and businesses, instead of the central bank's existing benchmark one-year lending rate. Analysts and investors say the reforms are an official attempt to lower financing costs in the world's second-largest economy, which has faced continued pressure from weakening demand at home and an extended trade war with the United States. "The trend is clear - rates will go down in China. They will nudge it downward and won't do in such an obvious way to spook markets, or for people to think the slowdown is very severe," Trinh Nguyen, a senior economist for emerging Asia at Natixis in Hong Kong, told the Reuters Global Markets Forum on Tuesday.
"Overall, it is a modest cut in line with our expectations, though in the future, it's expected the LPR could go further lower, as China has its own target of steering funding costs lower," said Shen Xinfeng, an analyst with Northeast Securities.
Eyes were also on Chinese tech giant Huawei, caught in the crossfire of a protracted Sino-US trade war. The United States will extend a reprieve that permits China's Huawei Technologies to buy components from US companies to supply existing customers, the Commerce Department said on Monday, but it also moved to add more than 40 of Huawei's units to its economic blacklist.
The tech heavy start-up board index in Shenzhen lost 0.7% following the Huawei news.
Around the region, MSCI's Asia ex-Japan stock index was firmer by 0.36%, while Japan's Nikkei index closed up 0.55%. About 18.97 billion shares were traded on the Shanghai exchange, roughly 124.2% of the market's 30-day moving average of 15.27 billion shares a day. The volume in the previous trading session was 21.45 billion.
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