Chinese stocks erased earlier gains to close slightly lower on Thursday as investors cashed out of banking stocks, whose strong gains had helped the key index to hit its highest level in nearly two years repeatedly this week.
The benchmark Shanghai composite index closed 0.54 percent lower at 1,537.377 points. It had risen 1.73 percent by the midday break to hit its highest level since June 2004 - the fourth day the index has come close to hitting a two-year high.
"A correction had long been anticipated and could last for a few days because profit-taking pressure is mounting after the strong market rally," said analyst Li Wenhui at Huatai Securities.
"But the market may be able to sustain its momentum due to the heavy inflow of fresh funds amid improved sentiment."
Analysts said the index could test near-term support at 1,500 points in the next week or so, but should resume its upward trend to test the 1,600-point resistance in weeks after that correction.
Merchants Bank Co, the top Shanghai-listed lender, ended down 2.79 percent at 7.31 yuan but the stock is still up 14 percent since late April, buoyed partly by the hike in bank lending rates starting from April 28.
Minsheng Bank Corp, China's first private bank, fell 1.38 percent to close at 4.30 yuan, but it has still risen 12 percent since late April as investors expected the rate hike to help boost domestic banks' bottom lines.
Despite Thursday's fall, the benchmark index has still jumped 32 percent since the start of this year, buoyed mainly by Beijing's market-friendly steps, including encouraging greater participation by mutual funds.
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