SHANGHAI: China stocks closed lower on Monday as worries over Sino-US tensions continued to weigh on the market, while a jump in new domestic COVID-19 cases also dampened sentiment.

The blue-chip CSI300 index fell 1.0% to 5,441.16, while the Shanghai Composite Index declined 1.1% to 3,531.50.

The US lifting of restrictions on interactions with Taiwanese officials is a “big thing”, Taiwan Foreign Minister Joseph Wu said, describing it as a major boost for relations with the island’s most important global backer.

China’s Ministry of Commerce on Saturday published new rules for countering “unjustified” laws and restrictions imposed by foreign countries on Chinese companies and citizens, as economic relations between Beijing and Washington deteriorate. Adding to the pressure, mainland China saw its biggest daily increase in COVID-19 cases in more than five months.

Leading declines, the CSI new energy index slumped 4.4%. The index had gained more than 100% in 2020, thanks in part to China’s carbon neutrality pledge.

Bucking the broad weakness, banking firms rose after data showed China’s factory gate prices fell last month at their slowest pace since February.

Despite the retreat, some remained bullish on the market, citing a continued economic recovery and ample liquidity.

Liquidity conditions in China would remain relatively loose at the start of the year, while there is still room for mutual funds to boost equities holdings, Pacific Securities noted in a report.

“The risk is quite high out there given the ‘herd effect’ in some sectors fervently chased by investors, including some new energy and consumer companies whose valuations had been pushed to lofty levels that could not be validated by their earnings growth,” said Zhang Chengyu, vice general manager of Beijing-based asset management company Shiji Hongfan.