Shares tumble to lowest in over 6 months on dismal PMI reading

Shanghai stocks yesterday plunged to the lowest level in more than six months on China's manufacturing activity contracting further in June to a nine-month low and a rise in lending rate due to a liquidity crunch.

The Shanghai Composite Index tumbled 59.43 points, or 2.8 percent, to 2,084.02, the lowest close since December.

HSBC's Flash China Purchasing Managers' Index, the earliest indicator of China's economic conditions, fell in June to 48.3, down from 49.2 in May, HSBC Holdings Plc said yesterday. A reading of 50 or higher indicates that activity is expanding.

"The manufacturing sector is weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressure," said Qu Hongbin, chief China economist at HSBC.

UBS Investment Research cut its forecast for China's 2013 economic growth to 7.5 percent from an earlier projection of 7.7 percent, citing slower exports on a waning global demand and a firming yuan.

Investor sentiment was also hit by the liquidity squeeze. The seven-day repurchase rate, a gauge of interbank funding cost, surged 292.90 basis points to a record high of 11 percent in Shanghai yesterday.

"The money market rate is expected to stay high as the regulators aim to curb credit growth and tighten control on off-balance sheet businesses," UBS said.

State-owned Central Huijin Investment Ltd said yesterday that it will purchase more A-shares in six of China's financial institutions over the next six months. The company's recent moves have been considered by many as an apparent effort to shore up market confidence.

Zijin Mining Group Co, the nation's largest gold producer, fell 3.9 percent to 2.73 yuan (45 US cents). Zhongjin Gold Corp slid 5.1 percent to 10.32 yuan.