China's main stock index closed down 0.1 percent on Friday, as lingering worries over an imminent interest rate rise pushed large-cap banking stocks sharply lower. The benchmark Shanghai Composite Index ended at 2,759.4 points, reversing a rise earlier in the day. The index was up 0.5 percent for the week, after rising by 3.9 percent the week before.
Worries in the market were sparked by market talk that the central bank could raise benchmark interest rates during the weekend due to expectations that inflation could hit a peak in June. "Investors are still worried over an interest rate hike during the weekend," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu. "But we think even if it happens, it will be the last such move."
Indeed, a pair of surveys showed Chinese manufacturing slowed in June, prompting some hopes among investors that authorities could ease up on monetary tightening, which also limited sharp falls in share prices. "For now, we can be sure that inflation will hit a peak in June, so an interest rate rise could happen later in the month," said Zhang Qiwei, an analyst at China Economic and Business Monitor in Shanghai. "But before the economic data release (for other data for June), the government is unlikely to announce more tightening policies, and so now is safe."
Analysts said a rebound in market liquidity also could boost the index, with the benchmark money market rate, the seven-day repo rate, dropping 66 basis points to just under 5.90 percent, easing from a peak of around 9 percent last week. Most banks listed on the Shanghai and Shenzhen markets fell, with top lender Industrial and Commercial Bank of China losing 1.8 percent and Agriculture Bank of China dropping 2.1 percent.
Automaker BYD's yuan-denominated A-shares outperformed, trading up their 10 percent daily limit, after its chairman told local media that Warren Buffett had no plan to cut his stake in the company. Hong Kong's stock market was closed for a public holiday.
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