China shares fall 0.7 pct, liquidity concerns weigh in

(Reuters) - China's main stock index edged down 0.7 percent by midday on Monday, due to tightening of liquidity in the market and caution over further policy tightening, with investors off loading recent gainers such as steel and cement issues.

The benchmark Shanghai Composite Index was at 2989.5 points, below the key 3,000 psychological level. It had risen over 15 percent from a low hit in late January although it fell 1.3 percent last week.

Analysts said a further correction was expected but any large declines were unlikely.

"The index hadn't properly corrected, so we think it is a correction after the sharp rise," said Cheng Yi, analyst at Xiangcai Securities in Shanghai.

He said tightening of liquidity in the financial market was also a reason for Monday's decline, with the benchmark money market rate, the weighted average seven-day bond repurchase rate rising around 60 basis points.

"It (tightening liquidity) may be a temporary situation as the huge amount of (bills and repos) maturing could give it a help," Cheng said.

Traders in the money market said liquidity was tight due to month-end demand.

A total of 255 billion yuan in central bank bills and repos are due to mature this week.

Analysts said caution about a further policy tightening by the Chinese central bank had returned to the market after consumer inflation surprisingly rose to 5.4 percent in March, and that might confine the index to around the 3,000-point psychological resistance level this week.

Steel makers underperformed on the market, with Xinjiang Ba Yi Iron & Steel tumbling 5.6 percent and Hebei Iron And Steel dropping 4.5 percent. But speculation in the Chongqing Iron & Steel lifted it to its 10 percent daily limit.

Cement issues also performed weakly, with Anhui Conch Cement declining 1.7 percent and Huaxin Cement slumping 4.4 percent.

The Hong Kong stock market is closed from April 22 to 25 for a public holiday. (Reported by Yixin Chen and Kazunori Takada) Hong Kong report Taiwan report Shanghai indices <0#.INX.SS> Shenzhen indices <0#.INX.SZ> Hong Kong indices <0#.INX.HK> H-share index Red share index SPEED GUIDES