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China: Stocks extend fall on policy tightening, regulatory concerns

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[SHANGHAI] China's main stock indexes extended losses on Wednesday, with investors cautious on lingering worries about the country's tougher regulations and a shift toward tighter policy.

The blue-chip CSI300 index fell 0.4 per cent, to 3,413.13, while the Shanghai Composite Index lost 0.3 per cent to 3,135.35 points.

The SSEC is up 1.0 per cent year-to-date, but has lost 4.7 per cent from its 15-month high hit in mid-April, when concerns about tighter policy and the broader economic outlook triggered a selloff.

China's central bank injected 506.39 billion yuan (S$102.46 billion) into the financial system via short- and medium-term liquidity tools in April, down 18 per cent from the previous month, signalling its intent to curb rapid credit growth.

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The People's Bank of China (PBOC) said on Wednesday it had injected 200 billion yuan into money markets through open market operations, but made no mention of maturing medium-term lending facility (MLF) loans.

After years of super-loose policy, the PBOC has cautiously shifted to a modest tightening bias in recent months and regulators have stepped up a crackdown on riskier forms of financing as authorities try to contain financial risks from years of debt-fuelled stimulus.

Zhang Qi, an analyst with Haitong Securities said that tight liquidity could curb demand for equities, although he noted that the risks of a sharp downturn in the benchmark Shanghai Composite index were small.

Most sectors lost ground on the day, led by infrastructure and real estate stocks, and not helped by news that the Beijing branches of some major Chinese banks have raised interest rates on housing loans for first- and second-home buyers - the latest of several steps by authorities to check overheated property investment.