Stocks In China Suffer Worst Pullback In More Than A Decade

Selloff comes after major index hit a record on Monday.

SHANGHAI, China (AP) - China's volatile stock market plunged nearly 9 percent on Tuesday, its biggest drop in more than 10 years, sending ripples through markets from Hong Kong to Australia.

Investors, who had just lifted Shanghai's benchmark index to a record Monday, dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from the Chinese government to slow the nation's sizzling economy.

The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping. The index had gained 1.4 percent on Monday to a record 3,040.60.

The Shenzhen Composite Index on China's smaller exchange plummeted 8.54 percent Tuesday to 709.81.

Chinese share prices doubled last year as investors piled into the market following the completion of shareholding reforms that helped to reduce worries over a potential flood of shares entering the market.

But stocks have been extremely volatile this year, with Shanghai notching one-day drops of 4.9 percent and 3.7 percent already this year - before recovering to hit new records.

On Tuesday, market heavyweights plunged on heavy selling by institutional investors, which in turn spooked retail investors.

''The most important reason for today's decline was pressure for profit-taking,'' said Peng Yunliang, a senior analyst at Shanghai Securities.

''People viewed 3,000 as a psychological benchmark. It's understandable they might want to pull back after the market hit that peak,'' Peng added.

Large-cap Baoshan Iron & Steel hit the 10 percent downside limit at 9.03 yuan, CITIC Securities fell 9.7 percent to 36.21 and China Life Insurance declined 9 percent to 33.89 yuan.

Airline shares were battered after oil prices rose.

Air China slid 10 percent to 6.79 yuan, and China Southern Airlines lost 5 percent to 5.81 yuan.

Worries about further government attempts to cool China's torrid growth contributed to the sell-off. China's economy last year grew 10.7 percent - the highest rate since 1995 - and a central bank report at the beginning of the year estimated it would expand 9.8 percent this year.

On Monday, banks were required to raise the amount of money they must hold in reserve to 10 percent from 9.5 percent, reducing the amount available for lending. Authorities had already raised the reserve ratio on Jan. 15.

The government, worried that excessive borrowing could trigger a debt crisis, also raised interest rates twice last year.

Elsewhere in Asia, Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, while Malaysia's Kuala Lumpur Composite Index fell 2.8 percent.

China still limits foreigners' purchases of the yuan-denominated stocks that make up the biggest share of the markets, though that is gradually changing as regulators allow increasing participation by so-called qualified foreign institutional investors.

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