China stocks fall on inflation news; bargain-hunting trims losses

SHANGHAI, China - Chinese stocks fell Friday as newly released inflation data revived worries of further credit tightening. But late in the day, bargain hunting in pharmaceutical and food shares helped trim losses.

The benchmark Shanghai Composite Index fell 1.2 percent, or 43.35 points, to 3,613.49. The Shenzhen Composite Index fell 0.5 percent to 1,097.42.

The Shanghai benchmark fell as much as 2.9 percent earlier in the day after the government reported that the producer price index, a key inflation indicator, rose 8.1 percent in April compared with the same month a year ago.

Investors sold Chinese stocks on worries of further tightening of monetary policy to help control inflation, analysts said. China's consumer price index rose 8.3 percent in March, down from a rise of 8.7 percent in February. The increase in the February price index was the highest inflation rate in nearly 12 years.

China is due to release April CPI data on Monday. Friday's news on the producer prices prompted estimates that consumer inflation for April would come in at about 8.5 percent.

Financial and property shares, those most acutely affected by monetary policy, led the decline.

Industrial & Commercial Bank of China fell 2.7 percent to 6.14 yuan, China Merchants Bank slipped 1.7 percent to 31.26 yuan and property leader China Vanke shed 1.1 percent to 21.88 yuan.

"The market 'hot pot' is changing fast and prices are not sustainable these days, which suggests investors lack confidence," said Zhang Linchang, a strategist with Guotai & Junan Securities, in Shanghai.

But later in the day, investors were buying shares in pharmaceutical, retail and agriculture companies _ which are viewed as relatively inflation-proof, said Xu Zhiyuan, a strategist at Capital-Edge Investment & Management Co. in Shanghai.

In currency dealings, the U.S. dollar was at 6.9967 late around 0830 GMT on the over-the-counter market, down from 7.0052.

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