China's main stock index fell sharply on Thursday, ending a seven-day rising streak, after Premier Wen Jiabao warned that the government would tighten policy further to prevent the economy from overheating. The Shanghai Composite Index closed down 1.47 percent at 4,115.209 points, after dropping as much as 2.18 percent at one stage.
Losing Shanghai stocks outnumbered gainers by 623 to 241. Turnover in Shanghai A shares was 183.4 billion yuan ($24.1 billion), down from Wednesday's 216.9 billion, showing Wen's statement had made some investors more cautious. In a statement late on Wednesday after a regular cabinet meeting, Wen said Beijing would "appropriately tighten" monetary policy and take other steps to restrain the economy.
"Premier Wen's speech about preventing the economy from overheating increased concern that the government will cool down the economy, including the stock market," said Tang Zhenbing, analyst at Hongyuan Securities.
Investors had already been wondering about official action to cool the market, since the index's rally had taken it to within 4 percent of its record high - the level at which authorities hiked the trading tax late last month to curb speculation, triggering an index plunge of as much as 21 percent.
However, some analysts said the market's pullback would be brief, given expectations for further inflows of mutual funds. Before Wen spoke, the market had already been expecting a 0.27 percentage point interest rate hike in coming weeks following Tuesday's poor May inflation data. "The pull-back today won't hamper the rebound which started on Tuesday last week," said Xiang Weida, senior analyst at Great Wall Securities.
Heavily weighted financial stocks were weak on Thursday, with Industrial & Commercial Bank of China sinking 2.84 percent to 5.13 yuan after climbing 4.35 percent on Wednesday. Steel stocks also tumbled, with Baosteel losing 3.87 percent to 11.44 yuan. Wen said the government would further adjust export tax rebates, and analysts believe such measures could target steel exports among other things.
But speculative interest in small-capital stocks remained strong. The index for Shenzhen's small and medium-sized enterprises board rose above 5,000 points for the first time during the day, though it ended up just 0.10 percent at 4,937.68.
Special category stocks - companies which have posted losses for the past two years - were hot, with eight of them gaining their 5 percent daily limits. Qinling Cement jumped 5 percent to 6.42 yuan.
Metal stocks were also strong, as Nanshan Aluminium rose 6.20 percent to 23.80 yuan and Xianmen Tungsten surged 5.45 percent to 25.36 yuan. Chalco's Hong Kong-listed H shares soared 10.73 percent to HK$12.20 on Thursday after Goldman Sachs upgraded them to buy from neutral, citing an acceleration in aluminium demand.
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