SHANGHAI - China's stocks fell on Friday on the prospect the government will intensify measures to curb inflation and property speculation. The losses narrowed the biggest monthly gain since July 2009 for the Shanghai Composite Index.

China Vanke Co and Industrial & Commercial Bank of China dropped at least 1.6 percent after the banking regulator asked lenders to guard against risks from property loans and the China Securities Journal reported banks had cut discounts on mortgage rates. Bank of Communications Co slid to a two-week low after reporting profit that trailed analyst estimates. Citic Securities Co led brokerages lower on concern this month's rally was excessive given the outlook for earnings.

"Inflation is a persistent concern and there's market talk that the October inflation number will be at a higher level," said Wang Zheng, chief investment officer at Jingxi Investment Management Co in Shanghai. "The rally for big-caps is probably coming to an end now as valuations are full after a 40 to 50 percent jump in less than a month."

The Shanghai Composite Index retreated for a fourth day, losing 0.5 percent to 2978.84. Friday's losses pared gains for the month to 12 percent, the most among the 88 global indexes tracked by Bloomberg. The CSI 300 Index fell 0.5 percent to 3379.98 on Friday.

Chinese stocks have surged on expectation central banks around the world will inject more cash into their economies to boost growth. The Shanghai gauge is still down 9.1 percent this year after the government raised bank reserve requirements and curbed lending growth to avert asset bubbles.

Property stocks fell the most on the Shanghai Composite on Friday, with its benchmark measure losing 2 percent.

"The tightening pressure hasn't faded," said Zhang Kun, a strategist at Guotai Junan Securities Co in Shanghai. "With looming inflation and high property prices, the government will follow up with measures such as raising interest rates. The rally will probably pause at this level."

Coal producers led the rally this month, with Yanzhou Coal Mining Co gaining 60 percent as it reported a tripling in third-quarter profit from a year earlier.

China is attractive because of "strong local consumer demand," said Robert Froehlich, senior managing director at Connecticut-based Hartford Financial, which oversees $352 billion.

"In addition, business investment also remains strong. Good consumption along with good business investment will bode well for the economy and the market."

Bloomberg News

(China Daily 10/30/2010 page10)