Shares drop further as Fed moves to cut stimulus

Shanghai stocks declined eight days in a row Thursday after the US Federal Reserve announced to scale back its unprecedented bond-buying program.

The benchmark Shanghai Composite Index fell 0.95 percent, or 20.49 points, to 2,127.79. Daily turnover stood at 61.5 billion yuan (US$10.1 billion).

Fed Chairman Ben Bernanke yesterday announced the plan to taper the third round of quantitative easing, known as QE3, starting in January by reducing its monthly bond purchases to US$75 billion from US$85 billion.

The Fed launched the massive bond-buying program in September 2012 to stimulate employment.

"The A-share market is facing downward pressure as the tapering of QE3, an external support for the market, came much earlier than expected," Ma Jinliang, analyst with Sealand Securities, said in a note today.

Ping An Securities said withdrawing the stimulus will lead to a dramatic decline in foreign capital inflow and weigh on China's stock market. But in the long run, market performance still depends on domestic fundamentals, especially progress in reform, said the broker.

CITIC Securities said China's stock market has been constrained lately by concern over slowing economy and tight liquidity.

The seven-day Shanghai Interbank Offered Rate, or Shibor, a gauge of funding costs, rose for the fifth day today, adding 57 basis points to 6.5 percent, the highest since June 20, according to the National Interbank Funding Center.

Oil shares slumped. China Petroleum & Chemical Corp lost 1.3 percent to 4.61 yuan. China Oilfield Services Ltd fell 1.5 percent to 22.43 yuan.

Property developers also retreated. Poly Real Estate, China's second-biggest homebuilder, slipped 2.2 percent to 8.40 yuan. Gemdale Corporation was down 2.9 percent to 6.13 yuan.