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Chinese shares fall on liquidity concerns

Chinese equities fell on Wednesday following media reports that some major banks would stop lending for the rest of January and the central bank would increase interest rate on Friday.
The benchmark Shanghai Composite Index dropped 2.93 percent after rising for four consecutive days to close at 3,151.85 points.
The Shenzhen Component Index dived 3.25 percent, or 434.52 points, to close at 12,916.15 points.
Combined turnover totaled 326.6 billion yuan (47.8 billion U.S. dollars), up from 270.91 billion yuan on the previous trading day.
Losers outnumbered gainers by 771 to 108 in Shanghai and 765 to 55 in Shenzhen.
Media reports said that Chinese authorities had already given verbal orders to some banks to stop lending for the rest of January in an effort to cool the economy.
However, this was denied by China\’s top banking regulator Liu Minkang on Wednesday at the Asia Financial Forum held in Hong Kong, but Liu did say that the country\’s overall credit growth would be restricted to 7.5 trillion yuan in 2010, compared with last year\’s record 9.59 trillion yuan.
Premier Wen Jiabao said at a cabinet meeting on Tuesday that China will manage the pace of credit growth and guard against financial risks.
Concerns among investors were intensified after a Hong Kong-based TV station reported Wednesday afternoon that the central bank would raise interest rates by 0.27 percent on Friday to curb the growing inflation expectation.
China\’s central bank raised the reserve requirements on banks by 0.5 percentage points on Monday, the first increase in 18 months, which analysts forecast would help freeze 250 billion yuan of liquidity.
Banking shares slumped across the board by 3.17 percent, led by Huaxia Bank which dropped by 4.24 percent. Industrial and Commercial Bank of China, the country\’s largest commercial bank, sank 2.57 percent to 4.93 yuan, while Bank of China lost 1.68 percent to 4.1 yuan.
Shares of property developers declined by 3.1 percent. China Vanke Co., the country\’s largest property developer by market value, sank 2.98 percent to 9.76 yuan. Poly Real Estate Group Co., the country\’s second largest developer, lost 3.62 percent to 20.51 yuan.