China stocks rebound slightly

China's main stock index rebounded from near major chart support to close flat on Thursday, but turnover shrank further as worries about the strength of the economy continued to weigh on the market. The Shanghai Composite Index ended at 2,277.411 points, up 0.03 percent from Wednesday's 20-month closing low.
It bounced after falling to an intra-day low of 2,249.120, for a second straight day nearing technical support at 2,245, its high in the year 2001. Gaining Shanghai stocks outnumbered losers by 623 to 270, but turnover in Shanghai A shares shrank to 25.7 billion yuan ($3.8 billion), the lowest since October 2006, from Wednesday's 26.7 billion yuan.
"There could be a rebound in the short term," said Chen Ge, fund manager at Fullgoal Fund Management. "But given the economic uncertainty ahead, the larger market downtrend is likely to continue." Investment bank China International Capital Corp said in its latest economic report that China's retail sales growth might slow further because of lower income growth and the negative wealth effects of the declining property and stock markets.
A widening gap between consumer price inflation and higher producer price inflation - which would be negative for corporate profit margins - will be coupled with weakening external demand and sluggish exports, it said. "China's economy is decelerating, and no one knows how bad it will be," said Gao Lingzhi, strategist at Great Wall Securities. "Technically, the index is in a downtrend. The low point is being constantly refreshed."
The stock market may also benefit from fresh inflows of money. Thirteen mutual funds, which recently obtained approval from the securities regulator, are expected to be launched in September, the Shanghai Securities Journal reported. But concern about the economy continued to offset such factors on Thursday. Banking shares were sluggish with Industrial & Commercial Bank of China, the biggest lender, closing flat at 4.64 yuan.
The "golden age" of profit growth at Chinese banks has begun to end because of limited profit margins on their interest income and the negative impact of weak markets on their asset quality, the China Securities Journal reported on Thursday, noting that some banks were starting to report rises in bad loans.
Among gaining stocks on Thursday, most beverage and dairy producers rose on news of Coca-Cola Co's $2.5 billion offer for Hong Kong-listed China Huiyuan Juice Group. Coca-Cola agreed to pay HK$12.20 a share in cash, nearly three times Huiyuan's market price and 43 times its forecast 2008 earnings, while most Chinese beverage companies now trade at much lower valuations. Milk maker Bright Dairy jumped 3.09 percent to 5.67 yuan.