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China stocks end down 0.2%, turnover shrinks

(Agencies)
Updated: 2009-03-12 16:03

China's stock market ended well off early lows but turnover shrank on Thursday, as mixed data kept alive hopes for an economic recovery but cast doubt on its strength and sustainability.

The Shanghai Composite Index, which hit a low of 2,086.018 points in the afternoon, closed down just 0.24 percent at 2,133.881 points.

Related readings:  Asian stocks sink amid anxiety over world economy  HK stocks close 2.02% higher on Wall Street upsurge  HK regulator probes into HSBC share trading

But turnover in Shanghai A shares shrank to 70.7 billion yuan ($10.3 billion), near a seven-week low, from Wednesday's 87.9 billion yuan.

Following very weak February export figures on Wednesday, the government announced on Thursday that annual industrial output growth slowed to 3.8 percent in January and February from 5.7 percent in December, coming in well below analysts' median forecast of 6.4 percent.

February money supply and yuan lending data were both stronger than expected -- a positive signal for the stock market, since money from a government-directed jump in lending has flowed into equities this year. Annual growth in China's broad M2 measure of money supply surged to 20.5 percent in February from 18.8 percent in January.

But fully 46 percent of new February lending was in the form of short-term bill financing, up from 39 percent in January; analysts believe much of that money may be fuelling interest rate arbitrage by companies, rather than long-term investment that would boost final demand in the economy.

Also, the annual session of China's parliament looks set to end this week without major news on fresh economic stimulus policies.

"Investors see good reason to take profits under pressure from the data and the end of the parliament session, so there's a good chance of the index revisiting the 2,000-point level," said Li Shiming, analyst at Xiangcai Securities.

That level, which was resistance for the index in late December and January, is widely seen as strong technical support.

A late rally in real estate shares helped bring the market off its lows, with Vanke rising 1.69 percent to 7.83 yuan; some traders cited a rumour that China might soon cut interest rates. But the bond market generally thinks further monetary easing is very unlikely at present, given the high money supply growth.