Worried about European debts, China stocks drop

15:48, March 25, 2010

Stocks in Shanghai and Shenzhen sank on Thursday on jitters over debt levels in Greece, and after the rating agency Fitch Ratings lowered the sovereign bonds of Portugal, which points to a worsening scenario in Europe and a dimming prospect of global recovery.

Investors sold off stocks of banks, insurances, energies, minerals and auto manufacturers. Upon closing, Shanghai's composite stock index dropped 37.63 points, or 1.23 percent to end at 3019.18 points. In Shenzhen, the index tumbled 203.14 points, or 1.65 percent.

Analysts said that if the European Union cannot come up with a rescue plan to throw a lifeline to deeply indebted Greece, and also offering a helping hand to Portugal and other southern European countries, world stock markets could greet a long week of contraction.

The Wall Street fell overnight as the Portugal downgrade and a weak U.S. Treasury note auction fanned worries about sovereign debts, eclipsing data showing U.S. durable goods orders rose for the third straight month, which confirmed its economic recovery was on course. The Dow Jones industrial average closed down 0.48 percent, while the Standard & Poor's 500 Index was down 0.55 percent.

Meanwhile, China's central bank kept investors guessing when its next macro-control measure come out, as the country's inflation surged to 2.7 percent in February from 1.5 percent a month ago. Most have expected Beijing to order banks to store more of their money as reserve, in order to cool an over-heated urban housing market.

Economists have asked the central government to curb the asset markets from exploding, amid growing worries a burst of the property frenzy could cause widespread negative impacts on China's economy and beyond.

It is reported that investors reduced their holdings of Chinese equities in January as the government stepped up efforts to cool asset bubbles. China's stocks are the worst performers in Asia this year after the central bank twice ordered banks to set aside more funds as reserves and officials stepped up curbs on property speculation.

By People's Daily Online