By Dong Zhixin (chinadaily.com.cn)
Updated: 2008-06-11 16:26

China's stocks continued to slide on Wednesday, extending an 8 percent slump on the previous session, as inflationary concerns prompted a fresh round of panic selling.

An investor stands in front of an electronic board at a brokerage in Dalian, Liaoning Province, June 10, 2008. China's stocks continued to slide on Wednesday, extending an 8 percent slump on the previous session, as inflationary concerns prompted a fresh round of panic selling. [Asianewsphoto]

The Shanghai Composite Index, the most widely watched indicator of the country's stock market, lost 1.57 percent to close at 3,024.24 points, roughly half of the peak reached Mid-October.

As investors' sentiment was hit hard by the 7.73 percent fall on Tuesday, the Shanghai index opened 30 points lower and dropped further after the release of wholesale inflation data.

The Producer Price Index (PPI), which measures the price of goods when they leave the factory, jumped 8.2 percent in May from a year earlier, up from 8.1 percent in April, the National Bureau of Statistics (NBS) said in a statement on its website. The May growth was the fastest in more than three years.

The PPI was believed to be a key leading indicator of the Consumer Price Index (CPI), a gauge watched closely by the central bank when deciding on monetary policy. The CPI jumped 8.5 percent in April over a year earlier, the highest level in more than a decade.

Experts expect the CPI growth to fall below 8 percent in May and gradually moderate in the coming months. However, the spike in the PPI suggested the fight against inflation will remain a priority for regulators and another round of monetary tightening may come soon after the 100-basis-point hike in commercial banks' reserve ratio.

In response, the Shanghai index dropped to as low as 2,992.35 points. However, the tightening concerns were quickly overwhelmed by the expection that the government might step in to revive the market.

When the Shanghai index hit 2,990.29 points less than two months ago, regulators slashed the stamp tax on stock trading, sparking a 9 percent rally in the following session.

Bargain hunters therefore returned and helped the index regain some of the losses to close at 3,024.24 points. However, analysts did not expect a big rebound as the CPI figures will be released on Thursday and the inflationary concerns will continue to weigh on investors' sentiment.

The banking shares continued their poor performances, as they are subject to the direct influences of any monetary tightening. The Industrial and Commercial Bank of China, the country's biggest lender, fell 2.42 percent to close at 5.25 yuan per share.

PetroChina, which has the biggest weighting in the Shanghai Composite Index, dropped 1.43 percent to 15.9 yuan, slightly higher than its initial public offering price of 15.7 yuan.