China's main stock index closed 4.49 percent lower on Monday, its biggest daily drop since late January, because of slides in large caps such as PetroChina and Ping An Insurance.
The market remained gripped by concern about its ability to cope with new share supply from planned equity offers, and by talk that major shareholders were dumping stocks that had recently become tradable with the expiry of lock-up periods related to IPOs and reform of state shareholding structures.
Ping An, China's second largest life insurer, which plans a doiment was so poor that shares in companies were sold simply because of speculation that they might intend to make cash calls, and overseas investments - especially involving volatile foreign stock markets - were taken as reasons to sell.
"Firms linked to equity issues and overseas expansion plans, especially large caps, are tumbling. This shows disappointment that authorities did not announce any fresh policies to support the market over the weekend," said Chen Jinren, analyst at Huatai Securities.
PetroChina, still suffering from last Wednesday's announcement of a sluggish 3.7 percent rise in second-half earnings, tumbled 5.71 percent to 19.83 yuan, after setting a record intra-day low of 19.80 yuan.
"PetroChina's drop below 20 yuan added to fears about how long large caps will continue leading the market down. Sentiment has worsened because investors see another massive sell-off that isn't triggered by weakness in overseas markets," said Zhang Yanbing, analyst at Zheshang Securities. Pudong Development Bank, which like Ping An plans a big equity sale, lost 10 percent to 30.85 yuan.
China Life, the country's largest life insurer, dropped 8.15 percent to 28.97 yuan after the official China Securities Journal reported it had invested $300 million in VISA Inc's US initial public offer.
China has approved the launch of another three stock-oriented funds, state media reported on Saturday, the latest in a series of such moves designed to shore up the stock market. The index bounced sharply last week from near technical support at 3,561, the 50 percent retracement of its bull run from June 2005, so many analysts believe that area may be a floor for some weeks or longer.
But the index faces psychological resistance around 4,000 points and strong chart resistance at the February lows of 4,123-4,195, which could prove equally hard to break. Among early gainers on Monday were shares in companies based in Fujian province, which initially rose in response to the result of the weekend's presidential election in Taiwan, where Ma Ying-jeou's victory could result in closer trade ties with China.
But Ma's victory had been widely expected and many of the Fujian shares had already jumped late last week, so in the absence of any concrete news on better economic relations, the shares generally closed lower.
Fujian Cement lost 1.59 percent to 11.74 yuan in its heaviest volume for several months, after hitting an early high of 12.95 yuan. Xiamen Airport, which might benefit if direct air links are eventually established between Taiwan and China, soared 31 percent between Wednesday and Friday last week, partly in anticipation of the election result. It jumped to a record high of 30.36 yuan early on Monday morning, but then pulled back to end down 10 percent at 24.84 yuan.
The Shanghai Securities News reported on Monday that Xiamen Airport's parent group planned to inject major assets into it, but this positive news had long been expected. Airlines and shipping firms, which would likely profit from direct transport links with Taiwan, fell sharply on Monday.
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