SHANGHAI - Stocks on the Chinese mainland fell the most in two months as railway shares plunged after a deadly bullet-train accident, while the political stalemate over the US debt limit boosted concern that the world's biggest economy will default.

CSR Corp and China CNR Corp, the nation's biggest train makers, tumbled more than 9 percent after the weekend train collision killed at least 38 people and prompted the government to order a rail safety inspection.

China Vanke Co led declines for developers as Credit Suisse Group AG said the accident might dampen demand for real estate in cities along new railway lines.

"The train crash may trigger an investment cut in railway construction," said Tu Jun, a strategist at Shanghai Securities Co.

"The failure to reach agreement on the US federal debt limit is hurting investors' confidence in the economic recovery. All the weekend news is bad for stocks."

The Shanghai Composite Index was down 64.33 points, or 2.3 percent, at 2706.46 as of 2:06 pm, the most since May 23. The measure dropped 1.8 percent last week, the first decline in five weeks.

CSR plunged 9.1 percent to 6.03 yuan, set for its lowest close since Oct 29. China CNR dropped 9.4 percent to 5.89 yuan (91 cents), the biggest decline since its listing in December 2009.

The collision will slow the pace of railway construction, according to Guotai Junan Securities Co. The growth of equipment companies will be affected, it said.

The railway ministry will postpone auctions for equipment, Shenyin & Wanguo Securities Co analysts said, cutting their stock ratings for CSR and CNR to "neutral".

The train accident, along with "constant malfunctioning" of the Beijing-Shanghai bullet train, may dampen demand for property in cities along new railway lines, Credit Suisse said.

Land sales in "several" cities along the new Beijing-Shanghai high-speed railway line surged in 2009 and 2010, analysts including Du Jinsong at Credit Suisse wrote in a report.

China Vanke, the nation's largest developer by market value, slid 3.1 percent to 8.16 yuan. Poly Real Estate Group Co slipped 3.3 percent to 10.37 yuan.

China Eastern Airlines Corp led a rally for airlines after Barclays Plc said the train crash will spur demand for alternative transport. China Eastern, the second-largest carrier, added 2 percent to 5.13 yuan.

China Southern Airlines Co, the biggest carrier, gained 1 percent to 8.06 yuan.

"We expect travelers to gradually turn to alternative transport means, including expressways," Patrick Xu and Jon Windham, analysts at Barclays, wrote in a report.

PetroChina Co, the nation's largest oil producer, lost 2 percent to 10.37 yuan, set for its lowest close since Sept 30.

Jiangxi Copper Co, the biggest copper producer, slid 2.4 percent to 34.91 yuan.

Bloomberg News

(China Daily 07/26/2011 page17)