May 10, 2017 / 7:19 AM / 3 months ago

Shanghai stocks slip to 7-month low after slower producer inflation

3 Min Read

SHANGHAI, May 10 (Reuters) - Shanghai stocks surrendered gains to end at their lowest since mid-October, after producer price inflation cooled more than expected and worries persisted over tightening financial regulations.

The blue-chip CSI300 index fell 0.5 percent to 3,337.70 points, down for the 8th straight session, while the Shanghai Composite Index lost 0.9 percent to 3,052.79 points.

The tech-heavy start-up board ChiNext slumped 1.7 percent to end at a 27-month trough, breaking through for the first time the lowest levels seen during the depths of the 2015 stock crash.

China's April factory gate prices cooled further, in a sign manufacturing activity may be losing momentum along with other sectors of the economy as domestic demand remains muted and the government cracks down on financial risks.

The soft data, combined with slightly slower growth in manufacturing activity, reinforces analysts' views that China's economic expansion remains solid but is starting to moderate after a surprisingly strong start to the year.

China's reflation cycle in producer prices has probably peaked, and will trend down further, which could drag on economic growth in the second half of the year, said Betty Wang, senior China economist for ANZ in Hong Kong.

"Deleveraging remains the policy focus, regardless of the PPI or CPI trend. We don't think PPI or CPI will have any significant impact on the current policy direction," said Wang.

Tougher financial regulations have been a major concern for investors, many of whom fear the measures could go too far and hurt growth in the world's second-largest economy.

Concerns over policy tightening lingered, as the official Xinhua News Agency published editorials for the seventh day in a row that highlighted Beijing's concerted campaign to guard against financial risks, stoking concerns deleveraging efforts and financial regulations would not loosen.

Further dampening sentiment, speculation in the country's newly-launched Xiongan New Economic Zone seemed to lose steam amid a heavy hand of regulation, with three of those stocks tumbling the maximum allowed 10 percent.

Most analysts Reuters talked to expected investors to be cautious for now given a lack of positive catalysts and possibly peaking economic growth in the first quarter.

Main sectors lost ground. Financial plays offered some solace, while industry and material stocks dragged the most.

$1 = 6.9060 Chinese yuan Reporting by Luoyan Liu and John Ruwitch; Editing by Jacqueline Wong

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